Investing For Beginners: 10 Tips

Investing for beginners can be intimidating--it's hard to predict which stocks and bonds will do well and even some tried and trusted investment funds can look a little shaky after the global financial meltdown--so here are 10 tips to help. The U.S. Securities and Exchange Commission has a variety of suggestions that can help you do research and choose your investments wisely.

1. Select a broker or investment advisor that corresponds with your goals.  Make sure you know what your financial goals are before you start looking at firms. What are you saving for and when do you want the money to be available? Decide ahead of time what services you'll need. Some companies can provide advice, research and other investment services that can be helpful with investing for beginners, but could also have additional costs.
2. Be choosy. Once you've decided on your financial objective, talk with several different investing firms. Ask friends for advice and why they chose their broker or financial advisor.
3. Be nosy. Understand how your advisor will be paid. This allows you to make better decisions about if the company's advice is tailed to your financial interests.
   
4. Be suspicious. If something sounds too good to be true, it probably is. If the investment advisor has a high-pressure sales pitch, consider that the investment may be more trouble than it's worth.
5. Find out if your broker is insured. The Security Investor Protection Corporation can provide consumers certain specific protections if a brokerage firm is unable to pay its debts or becomes insolvent. Ask if there the firm has other insurances to help protect your investment.
6. Check out your broker. The U.S. Securities and Exchange Commission recommends you always confirm that your broker is licensed or registered in whatever state in which they're doing business and the state that you live in. This can prevent most of the ponzi and pyramid schemes out there and helps to identify the con artists, disreputable firms and other bad places to trust with your hard-earned money. You can find information about most brokerage firms though the Central Registration Depository.
   
7. Get background on your investment advisor. Investment advisers are required to register with the SEC or the state securities agency where they practice. If they deal with more than $25 million in assets, they usually have to register with the SEC.
   
8. Read your account agreement. It's imperative that you read over your investment agreement, understand the terms and agree with them. There are a couple key points to look for in your agreement. Who controls the decisions that affect your account? How does the firm expect you to pay for your investment?  If you don't understand any part of the agreement, seek financial advice before signing the account agreement.
9. Understand your risk. Investments all have some degree of risk, so it's important to understand what yours is and if you're willing to lose your investment. Some investment opportunities, like options, have the risk of losing more than your initial investment.
   
10. Protect yourself. There are red flags to look out for once you have an account. Look for excessive account transactions that may mean more money for your investment firm with no benefit for you. If an investment is suggested based on insider information, be wary. Look out for any dramatic changes in your investment strategy (or suggestions thereof). And if you notice an error in your account, make sure you receive an explanation of the error in writing and confirm that it's been corrected in your next statement.

U.S. Securities and Exchange Commission