Getting Started with Investing: A Beginner’s Guide

Investing has consistently remained popular and relevant across various generations. Interestingly, even the younger generation is now eager to participate in this common practice.

But what does investing really entail? Simply put, investing involves buying that you can sell later at a higher price for a profit. It does not mean saving money where you collect a substantial amount gradually. Instead, investing is when your money grows over time.

However, investing does not always lead to profits. It involves risks and potential losses. Keep reading as I further explore the concept of investing and how it works.

Let’s get started!

Where to Begin?

There are certain things that you must consider before you invest. It is imperative to have an investment strategy, decide how much you’re willing to invest, evaluate all the risks involved, determine your investment goals, etc.

Invest Early

Investing seems tempting when you’re young, and it is an ideal time to should start thinking about it. As you are near your retirement stage or a few years after investing, you can see the benefits of investment coming to fruition.

One common question that often strikes people prior to investing is whether they can start with a small amount. The answer is: of course, you can!

There is no minimum investment amount. Some small investments include index funds, exchange-traded funds, and mutual funds. It is important to do some research to get a well-rounded understanding of it.

Set Your Investment Goal

Once you have made up your mind, set an investment goal. It will not only give you an idea of the amount you can expect to return but also the timeline, the process, and future investment opportunities.

Decide How Much to Invest

The next step is to determine the investment amount. It is up to you if you wish to start with a smaller sum or dive in with a big chunk, depending on your initial investment goal.

People typically invest with the aim of securing their retirement. Many financial advisors recommend investing 15% of your income every year as a safe amount for investing and future returns. However, if you begin investing later in your career, you may consider investing a higher percentage to catch up.

Another common question is whether you should invest all your money at once or distribute it evenly over time, a strategy known as dollar cost averaging (DCA). Both approaches come with their own set of pros and cons.

As advised by Tara Falcone, the founder and CEO of Reason, a goal-based investing app, DCA is a smart strategy for medium to long-term goals. This approach ensures a consistent investment toward your goal, benefiting from both higher and lower trading prices.

Calculate Your Risk Tolerance

Investing doesn’t guarantee profits, and there will be times when your money may depreciate. This is where risk tolerance comes in. As an investor, you must evaluate the potential risks and be willing to take them for the prospect of a higher return.

Choose an Investment Strategy

You can tailor your investment strategy based on your savings goals, expected return, and your time horizon, which is the amount of time you have until you aim to achieve those goals.

For a long-term goal, such as retirement, you can invest in low-cost stock mutual funds, index funds, and similar options would be a wise choice. If the goal is short-term, say five years, you can consider online savings accounts or cash management accounts.

Understand Different Investment Options

The following are a few investment options that you can explore.

Stocks

Stocks refer to owning a share in a company. These are also known as equities, as you get a set percentage of the company’s shares.

Bonds

Buying bonds is essentially making a loan to a company or a government-owned entity. You receive the investment back with interest after a certain number of years.

Bonds involve less risk involvement as they are an agreement, ensuring that your money will be returned. However, they usually offer lower long-term returns, making up only a small part of your investment plan.

Mutual Funds

A mutual fund involves many individuals pooling money to purchase a diversified portfolio of stocks, bonds, or other securities. It involves less risk compared to an individual stock buying. All investors receive the returns based on their contributions and the performance of the funds.

Exchange Traded Funds (ETF)

These are like mutual funds and have benefits like them but with lower fees. It also allows more opportunities for trading.

Conclusion

Investing is a big decision, and it requires careful consideration and planning. At the same time, it should not be a source of stress; rather, it’s a means to secure your financial future.

You cannot expect your money to grow overnight. Just remember, the key to financial success is patience and consistency.

Have you started setting aside a portion of your income for investment purposes?

By Ayman Nazish

Author Bio:

Ayman Nazish is a versatile individual with a strong drive for professional growth and development. Currently working as a Content Writer for Health Recruiters.