Memorize the 5 Steps To Turn Holiday Cash Gifts Into Your First Investment
When you were a kid, money wasn’t always the most exciting holiday gift. You wanted that hot new toy or super-cool video game. Now that you’re older, you love getting cash gifts — and those crisp bills from grandma or the generous holiday tips from a seasonal side hustle aren’t going into your piggy bank but toward your very first investment.
There's just one catch: You have to figure out how to actually invest it.
Whether you received $50 or $500, investing that money is the best financial gift you can give yourself — especially if it jump-starts your journey as an investor. And while investing may sound intimidating, the process is easier than you might fear.
MoneyLion talked to a few experts who shared advice on how you can turn holiday cash gifts into your inaugural investment.
1. Get Started — Even With a Small Amount
Worried that you need Scrooge McDuck–level money to start investing? You don't. Even if your cash gift was a small, “it’s the thought that counts” amount, you can invest it, according to Curt Scott, CFP, president and investment adviser at Scott Financial Group.
“With as little as $50, someone can start to buy stocks, ETFs or mutual funds,” he said. “Many platforms allow you to buy fractional shares, which gives beginning investors access to investment options that may otherwise be too expensive to invest in right away.”
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2. Avoid Impulsive or Emotional Decisions
If you’ve never invested before, it’s easy to feel anxious about your choices — especially when you see the stock you were so sure of start to dip. As you obsessively check your portfolio, your palms sweat. Should you sell? Right now? Scott understands your fear. Still, he wants you to chill out.
Looking at your accounts too frequently can lead to emotional, impulsive decisions about buying or selling. Instead, Scott suggests creating a game plan before you even start investing. Determine when you’ll buy or sell — and for how much — while you’re in a calmer state of mind.
“This creates guidelines to refer to when market volatility happens,” he said. “Having an investment timeline and investing accordingly is a very important step to avoid making emotional investment decisions.”
3. Do Your Research — or Choose Built-In Diversification
The biggest mistake Annette Harris, owner of Harris Financial Consulting, has seen among investors using gift money — especially first-time investors — is dumping all their money into a single stock. Odds are, they haven’t researched that stock thoroughly, either.
“This results in an undiversified portfolio, which can spell disaster when the stock is not doing well, causing them to lose a significant portion of their investment,” she said. “The loss on an investment can be reduced by diversifying investments so that if one investment results in a loss, gains in other investments can offset it, making it easier to deal with.”
Harris acknowledges that the sooner you start investing, the better. But speed shouldn't come at the expense of informed decision-making. She encourages new investors to spend time researching smart investments and to seek help when needed.
“You don’t need a significant amount of money to open a brokerage account that will give you free advice on the right investment type for beginner investors,” she said.
One simple way to put diversification into practice is to invest in an exchange-traded fund, or ETF. ETFs bundle many investments into a single fund, allowing you to spread risk without having to spend hours researching individual stocks. Many platforms offer fractional shares, so even if you only have $50, you can still buy in.
4. Open a Portfolio Account With a Financial Firm
Harris also recommends that first-time investors open an investment or brokerage account with a financial firm. Because these firms offer a range of investment products and account types, new investors can more easily choose the right account and investments for them.
“With limited investment dollars, they can manage the investments themselves, talk to a financial advisor or explore automated investing,” she said.
5. Balance Investing With Other Financial Needs
It’s good to get excited about investing. What’s not so good? Letting that excitement crowd out your other financial responsibilities. Harris wants beginner investors to strike a balance between investing and their existing obligations.
Before investing your gift money, consider these core questions:
Will investing cause you to rely more heavily on credit or go further into debt?
Do you have sufficient funds available for emergencies?
Are there any other financial priorities that should be addressed first, such as high-interest debt or essential bills?
“You don’t have to avoid investing until all debt is eliminated, but identifying short-term and long-term financial priorities is key,” Harris said.
The Bottom Line
To ensure that your holiday cash-turned-first investment truly is the gift that keeps on giving, follow a few simple steps. Remember that even a small investment can have an impact over time. Avoid overreacting to market swings, prioritize diversification and choose options that match your budget and experience level. Starting simple and staying consistent can matter more than getting everything “perfect” from day one.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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