How to Start Investing with Your First Portfolio: A Beginner's Guide

Essential Tips for Crafting Your First Investment Portfolio

We've received countless questions from new investors on our social media platforms, asking where to begin, how to navigate market volatility, and which stocks to buy. Some of you may have already taken the plunge, only to find yourselves facing the turbulence of recent market shifts, trade uncertainties, and the ongoing impacts of tariffs.

Starting your investment journey can feel daunting, especially when you're just beginning. With so many investment options, strategies, and terms to decipher, it's easy to feel overwhelmed. The good news is that investing doesn’t have to be complicated. By breaking it down into manageable steps and focusing on the basics, anyone can build a strong portfolio that works toward your financial goals. With a clear plan and disciplined approach, you can weather market fluctuations and steadily grow your wealth. Here’s a step-by-step guide we put together to help you get started on the right track:

1. Set Your Financial Goals

Before you dive into the world of investing, it’s important to know what you’re investing for. Are you saving for retirement, a house, or building wealth over time? Understanding your financial goals will shape your investment strategy and timeline. For example, if you’re investing for retirement, your strategy will likely involve a long-term approach, with a focus on growth. But if you’re saving for a house down payment, you might focus on more stable, low-risk investments.

2. Understand the Basics of Asset Classes

Your first portfolio will likely include a mix of different asset classes. Here’s a breakdown:

• Stocks: Owning shares in companies. Stocks offer growth potential but come with higher risk.

• Bonds: Debt securities where you lend money to governments or corporations in exchange for interest payments. Bonds are less volatile than stocks but offer lower returns.

• Cash & Cash Equivalents: Low-risk, short-term investments that offer liquidity and safety, but lower returns. This includes savings accounts and money market funds.

• Real Estate: While not typically part of beginner portfolios, REITs (Real Estate Investment Trusts) offer a way to invest in real estate without needing large capital.

3. Create a Diversified Portfolio

Diversification is key to managing risk. Instead of putting all your money into one stock or bond, spread your investments across different asset classes and sectors. This way, even if one investment doesn’t perform well, others might help balance out the loss.

For beginners, a diversified portfolio might look like this:

• 60% Stocks: For growth potential, consider investing in broad market index funds or ETFs that track the overall market, such as the S&P 500. Some good ETF options to consider are:

  • SPDR S&P 500 ETF (SPY): Tracks the S&P 500 Index, offering exposure to 500 of the largest U.S. companies.

  • Invesco QQQ Trust (QQQ): Tracks the NASDAQ-100 Index, which includes major tech companies like Apple, Amazon, and Microsoft.

  • Vanguard Total Stock Market ETF (VTI): Offers exposure to the entire U.S. stock market, including large-, mid-, and small-cap stocks.

  • iShares MSCI ACWI ETF (ACWI): Provides exposure to both developed and emerging markets, allowing for international diversification.

  • Vanguard FTSE Developed Markets ETF (VEA): Focuses on developed markets outside of the U.S. and Canada, ideal for European and Asian exposure.

• 30% Bonds: To balance risk and add stability, consider bonds or bond funds. A good option is:

  • Vanguard Total Bond Market ETF (BND): Provides exposure to a broad range of U.S. bonds, helping reduce overall portfolio volatility.

• 10% Cash or Cash Equivalents: Keep a portion in low-risk, highly liquid investments for emergency needs or short-term goals.

4. Choose Low-Cost Investment Options

One of the best ways to start investing is by choosing low-cost options that are easy to manage. Index Funds and ETFs (Exchange-Traded Funds) are great options because they provide instant diversification at a low cost. They track a broad index, like the S&P 500, and don’t require the selection of individual stocks.

Additionally, look for investment platforms with low fees. High fees can eat into your returns over time, especially when you're just starting out.

Some additional low-cost ETFs to consider:

• Vanguard FTSE All-World ex-US ETF (VEU): A global ETF that excludes the U.S., providing international exposure for further diversification.

• Schwab U.S. Dividend Equity ETF (SCHD): Tracks U.S. high dividend-yielding stocks, perfect for investors seeking income generation in addition to growth.

5. Add a Hedge Against Inflation: Consider Commodities

With the current market volatility, including inflation and potential economic uncertainty due to trade wars, diversifying into commodities can provide a hedge. Commodities often perform well during inflationary periods, and including them in your portfolio can offer protection against rising costs.

Some commodity-focused ETFs to consider are:

• Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC): Focuses on a diversified basket of commodities, offering exposure to key resources like oil, natural gas, metals, and agricultural products. It helps hedge against inflation and provides diversification outside of traditional stocks and bonds.

• First Trust Global Tactical Commodity Strategy Fund (FTGC): Provides exposure to a broad range of commodities, including precious metals, energy, and agricultural commodities, with the goal of capitalizing on inflationary pressures or rising demand for natural resources.

These ETFs allow you to invest in a broad basket of commodities, which can serve as a good hedge against inflation, adding diversification and stability to your portfolio.

6. Open an Investment Account

To start investing, you’ll need a brokerage account. Many online brokers offer low minimum deposits and zero-commission trades. Some popular platforms include:

• Vanguard

• Fidelity

• Charles Schwab

• Robinhood

• TD Ameritrade

If you're investing for retirement, consider opening a tax-advantaged account like an IRA (Individual Retirement Account) or 401(k) if offered by your employer.

7. Start Small and Stay Consistent

You don’t need a large sum of money to begin. The key is to start investing as soon as possible. Even investing $100 a month is a step in the right direction. Dollar-cost averaging (DCA) is a great strategy to reduce the impact of market volatility and invest consistently over time.

Set up automatic transfers into your investment account to ensure that you're consistently putting money aside.

Be on the lookout for our upcoming post on Dollar-Cost Averaging, its benefits, and why it works!

8. Understand Risk and Time Horizon

All investments come with some level of risk. Stocks can fluctuate in value, bonds have interest rate risks, and even cash can lose value due to inflation. However, the longer you leave your money invested, the more you can take advantage of compound growth and reduce short-term risks.

For long-term goals like retirement, you might choose a portfolio with more stocks to maximize growth potential. If you’re investing for a short-term goal, like a down payment on a house, you may want to allocate more toward bonds or cash equivalents for stability.

9. Track Your Investments and Stay Educated

Once you’ve built your portfolio, monitor it regularly. Keep an eye on performance, but avoid making frequent changes based on short-term market fluctuations. Investing is a long-term endeavor, so staying focused on your goals will help you ride out market ups and downs.

Continue educating yourself - read investment books, follow credible financial blogs (like this one!), or take a financial course to deepen your understanding of investing.

Here’s Our Final Take

Starting your investing journey is an exciting step toward achieving your financial goals and securing your future. By setting clear objectives, diversifying your investments, and sticking to a long-term strategy, you’re laying the foundation for financial success. A well-thought-out investment plan not only helps you build wealth but also prepares you for future life events like retirement, buying a home, or funding education. The key is to stay consistent, be patient, and adapt as your financial situation and goals evolve.

Investing wisely is one of the most powerful tools you can use to create financial independence and ensure a comfortable future. While it may seem daunting at first, remember that each small step you take - whether it’s building your knowledge, opening an investment account, or regularly contributing to your portfolio - moves you closer to your financial aspirations. By taking the time to learn and make informed decisions, you're not only growing your wealth but also gaining peace of mind for years to come. Keep the bigger picture in mind, stay focused, and you’ll be on track to achieve your goals.