With global inflation and rising commodity prices worldwide, the buying power of the common man is decreasing at an accelerated rate. Just having a job doesn’t cut it anymore, since everyone has debt payments, bills, rent, groceries, and miscellaneous other expenses to manage. Even if you do take care of these expenses, there is a good chance that you will have zero savings at the end of the month. This is why people are not showing interest in how to start investing.
Investing isn’t a guaranteed way of making money, and there is always risk involved. However, the more risk you take, the higher your returns will be. Investing short-term will yield low returns, but can help with monthly expenses. Long-term investing, however, is best when you want to save for the future.
How to Start Investing
If you haven’t already made up your mind, you should do so now. Investing isn’t as complicated as people make it out to be, and the risk can be minimized easily, even for beginners. Therefore, if you want to know how to start investing, keep the following things in mind.
Investing as early as you can, is important because whether you like it or not, it’s a long-term process. Most investments actualize after years, which means investing late can mean lower returns. Moreover, you need to understand the concept of compound interest.
Compound interest is when you receive compounded interest payments on your savings. This means that every time you receive an interest payment, the next payment is calculated by adding the previous payment into your savings. Therefore, you keep receiving payments of increasing value over time. If you consider this in the long run, the more time you have, the greater your returns. That is why it’s best to start early.
Even in the case of other investments, like stocks, starting early familiarizes you with the market and teaches you how to predict market variations early on. Even if something goes wrong, you will have a lot of time to average out any losses.
Know Your Investment Limit
You need to decide how much you want to invest, and deciding that is based on your investment goals, as well as how fast you need to achieve those goals. The most common goal among people is retirement, which is why 401k’s are a popular investing opportunity. Most companies that offer 401k services also offer brokerage services, so you can invest your savings in mutual funds, stocks, and ETFs, among other things.
You should also aim to invest at least 10% of your income into your retirement, or other goals. It may seem hard to do so, but you should try making your budget with around 90% of your income, so you can invest with the rest. If you keep doing this over the years, you will have a good amount of money left over in the end, especially considering the returns you’ll be getting.
Open a Brokerage Account
If you have a 401k account, you can simply use that for your investing needs, but if you don’t, it’s best to open an investment account in a brokerage firm. Each firm provides the same brokerage services but in different capacities. Some may have thousands of investment options while others may have limited pre-planned portfolios.
You can decide which firm is best for you based on the level of risk you’re ready to take. Contrary to popular belief, you don’t need a ton of money to open an investment account. Some firms don’t even have a minimum investment amount, while others have a minimum but have no trade fees. There are pros and cons of each brokerage, so you will have to decide on one depending on your ability to take risk, your investment style, and your timeline.
Know Your Options
You need to understand that you have a lot of investment options. It’s best to not go with only one specific option, seeing as it’s best to opt for a diversified portfolio. This is so that any potential losses can be averaged out by other profiting investments. The following are some common investment options:
- Bonds: These are usually long-term investments and act as a loan to the company or government. The entity you buy a bond for repays this loan with accrued interest over the years.
- Stocks: These are the stock market shares of public companies. When you buy stocks, you are buying a part of the company and are liable to receive dividends and capital gain from them.
- Exchange-Traded Funds: These are several investments bundled into one, which makes it a safe investment. It’s a good option for beginner traders with low budgets.
- Mutual Funds: These are also a mix of investments bundled together. However, mutual funds are larger, managed more heavily, and provide greater returns. The possibility of incurring a loss with mutual funds is very low, which makes it an attractive investment option.
Usually, investing in all of these in some capacity is the best course of action.
Pick a Strategy
When you have everything planned out, you need to pick an investment strategy. This will be based on whether you want to invest for short-term or long-term returns, how much risk are you willing to take, and your goals regarding the returns.
When you create an investment strategy, it will include things like when to invest, how much to invest, what options to invest in, and where to invest, among other things. Down the road, you might even find yourself thinking about how to start investing in things like future options.
All in all, when you pick your strategy, you will need to stick with it. If it doesn’t work out the way you want, tweak it or change your approach altogether. It is best to consult an expert who can set you up once, and from there, you can handle your investments yourself.