Are you interested in investing? Are you overwhelmed and wondering where to start your investing journey?
You have come to the right place.
This article will highlight what you need to do to be on your way to start investing and achieving your goals.
Read on!
What is investing?
This is setting aside some money and trying to make it grow from buying products such as stocks, property, shares that might increase in value over time. For example, you might invest by purchasing a property or shares in a fund.
The value of an investment can be more significant than savings.
Good to know: the value of investments can go up or down (you might make a profit or loss) depending on the market demands and other factors.
How to get started?
First, have a strategy based on the following:
- the amount you’ll invest,
- the timelines for your investment goals,
- the amount of risk that makes sense for you.
Beginning of your investment journey, you will feel like paying rent, utility bills, debt payments, and groceries is all you can afford.
Good to know: you can start investing once you’ve mastered budgeting for those monthly expenses and set aside at least a little cash in an emergency fund.
It’s expected for a beginner to have a lot of questions and feel a little bit overwhelmed.
You will ask yourself questions like:
- How do I get started, and
- what are the best investment strategies for beginners?
This beginner’s guide for investing will answer those questions and more.
Here’s what you should know to start investing.
Get started investing as early as possible.
“The best time to start was yesterday. The next best time is now.” ~Unknown.
If you have some extra money aside, it’s best to start investing early when you’re young.
However, it’s never too late to start investing to see solid results on your money, no matter your age.
Thanks to compound earnings, your investments increase in value, which means your investment returns start earning their return.
Good to know: Compounding allows your account balance to snowball over time.
How that works in practice?
For example: Let’s say you invest $200 every month for ten years and earn a 6% average annual return. At the end of the 10 years, you’ll have $33,300. Of that amount, $24,200 is money you’ve contributed — those $200 monthly contributions — and $9,100 is interest you’ve earned on your investment.
Fact: there will be ups and downs in the stock market. The good news is when you invest when you’re young, translating to you have decades to ride them out (the ups and downs of the market) and decades for your money to grow.
What if I have a small amount of money?
Good news: you don’t have to start with a lot of money. Just start now, even if you have to start small. Take baby steps, and your investment will grow over time.
How much to start in your investment?
What are your investment goals? What is the timeline to reach your investment goals?
Once you have answers, you will know the amount of money you need to start your investments.
For example, people want to save for retirement. If you have a retirement account at work, such as 401(k), it offers matching dollars. It would be best if you consistently contributed at least enough to that account to earn the full match.
Why? Because, it’s free money, and you don’t want to miss out on it.
Good to know: As a general rule of thumb, aim to invest a total of 10% to 15% of your income each year for retirement. Then, your employer match counts toward that goal.
The beginning of investing in your 401(k) might sound unrealistic. However, over time, you can work your way up.
If you’re considering other investments such as buying properties, shares, etc.
Consider the following:
- First, consider (look at) your time horizon and the amount you need.
Then work backward to break that amount down into monthly or weekly investments.
Open an investment account.
If you don’t have a 401(k) account, then you can open an individual account like a traditional or Roth IRA to invest in for your retirement.
Good to know: retirement accounts is strictly used for retirement. They have restrictions about when and how you can take your money back out.
Also, choose a taxable brokerage account. You can remove money from a taxable brokerage account at any time.
However, If you’re investing for another goal, such as buying a property, then it’s advisable to avoid retirement accounts.
When you’re ready to open an account, you don’t need to deposit a minimum investment.
A lot of online brokers offer both IRAs and regular brokerage investment accounts.
Understand your investment options
It’s essential to understand your investment options, whether a 401(k) or Roth IRA, or a standard investment account. You decide what to invest in.
Before starting investing, you must understand each instrument (type of investment) and how much risk it carries.
The most popular investments are:
Stocks
What are stocks?
A stock or equities is a share of ownership in a single company.
Stocks are purchased for a share price. It can range from the single digits to a couple of thousand dollars, depending on the company.
Bonds
What are bonds?
A bond is a loan to a company or government entity, which agrees to pay you back in a certain number of years with interest.
Good to know: Bonds are less risky than stocks because you know exactly when you get paid back and how much you’ll earn.
However, bonds earn lower long-term returns. So, you cannot entirely depend on it. They should make up only a tiny part of a long-term investment portfolio.
Mutual funds
What are mutual funds?
A mutual fund is a mix of investments packaged together.
The advantage of using mutual fund is, allows investors to skip the work of picking individual stocks and bonds and instead purchase a diverse collection (of stores) in one transaction.
They are less risky than individual stocks because of the diversification of mutual funds(diverse collection of stocks).
Some mutual funds are run by professional management. But index funds follow the performance of a specific stock market index such as the S&P 500.
An index fund is a (type of mutual fund) and charges lower fees than actively managed mutual funds.
For example, most 401(k)s offer a curated selection of mutual or index funds with no minimum investment. However, investing outside of those plans, you might require to invest a minimum of $1,000 or more.
Exchange-traded funds
The exchange-traded funds (ETF) holdmany individual investments bundled together. ETF trades throughout the day like a stock. It’s purchased for a share price.
Good to know: ETF’s share price is often lower than the minimum investment requirement of a mutual fund.
If you’re an investor with a small budget or a newbie in investing, then ETFs are a good option for new investors or small budgets.
Pick an investment strategy.
When you pick your investment strategy, keep in mind, it will depend on the following:
- Your saving goals,
- How much money you need to reach them and
- Your time horizon.
For example, if your goal is to save for retirement 20 years away. Then, you can put almost all your money in stocks.
Keep in mind, picking specific stocks can be complicated and time-consuming. The best way for most people is to invest in stocks through low-cost stock mutual funds such as ETFs or index funds.
Suppose you’re saving for a short-term goal. Then you can decide to keep your money in a savings account, cash management account, or low-risk investment portfolio.
