How to Start Investing: A Quick Guide for Beginners

How to invest

Becoming an investor is a great way to allow your money to grow for you while enjoying your life raising a family, or traveling the world. World-renowned investor, John Bogle, founder of Vanguard, states “ investing is not as difficult as it looks. Successful investing involves doing a few things right and trying to simplify your goal.” By choosing from a variety of investment options you can experience exponential growth over the next year, decade, or quarter of your life. 

Investing doesn’t have to cost you a fortune and can be done regardless of your income circumstances or financial background. Today there is a bevy of funds and programs that you can get started with for as little as $100 per month. Below you will find a range of advice to begin your investment journey while achieving the most optimal outcome for your money.

Define Your Investment Goals 

Before you begin investing you should define your investment goals. Do you plan to invest to build a retirement nest egg and your children’s college funds, or just as a hobby? 

If your goal is to just build some passive income so that you live off of your money well into your golden years, then you may want to consider an index fund that lets you earn compound interest. For example, if you invested $100 initially and added $12,000 per year into a fund that gained a 7% return on average, you’d end up with a cool $492,332.88, or roughly half a million dollars in twenty years. 

Regardless of the motivation, there are several different avenues that you can take to reach these goals in a reasonable amount of time. 

What Type of Investor Do You Plan to Be? 

There are many different types of investors and your type may depend on whether you prefer to be passive or active as well as your savings goals. For each category of investor, there may be different strategies that would apply based on your preferences, such as being more hands-on in the day-to-day details, or handing your money over to an advisor and letting them make decisions on your behalf. 

In the investment world, these investors are called passive or active, and each one has some key differences when it comes to style or attitude.

Passive As a passive investor, you may tend to be more laid back or cautious with how your money is spent. This may work well if you aren’t as financially savvy, or don’t want to be bothered with the fluctuations of the market and stock swings. 

Active Most active investors are heavily involved in the daily nuances of trading, inflation, stock percentages, and investment news. For you every dollar counts and keeping abreast of any changes can give you the opportunity to curb losses or increase your gains. 

Know Your Risk Tolerance 

Nothing that you do in life comes without some form of risk, whether high or low. In the world of investing, the risks can be plenty and you can experience hefty gains or large losses. Before you decide how much you would like to invest, it’s a good idea to know your risk tolerance. 

One of the most common ways to reduce the risk of putting all of your eggs in one basket is by using diversification. This allows you to spread your money over a variety of investment types which is decided by percentages and asset categories.

An example of diversification would be if your money represented the following: 

  • Stocks – 60%
  • Bonds – 20%
  • Index Funds – 10% 
  • Cash – 10%

Decide on Your Budget

Having a budget when it comes to investing cannot be stated enough. The motto always remains “don’t invest more than you can afford to lose”. This is due to the fact that even in the best economy, the markets can be risky. 

Goals are a key factor when deciding how much you want to invest. Many people automatically invest at least 10% of their income in an employer sponsored or self employment retirement fund such as a 401(k) each year. Oftentimes, this comes with a match up to a certain dollar amount depending on the company.

However, when investing for the purposes of living off of interest, college education, or passive income in general, the amount should be gauged on a portion of your budgeted savings each month. 

Get to Know Your Investment Options

Investments can encompass a variety of options to put your money to use and maximize your returns. Getting to know the different types of investments available can help you better understand the risks and rewards associated with each one. 

Stocks

  • A stock is a akin to a slice of a pie that represents ownership in a company
  • They can be typically be purchased through any brokerage or firm
  • Stock shares can cost between a few pennies to several hundred dollars 
  • Available in fractional as well as whole shares

Funds

  • Funds are a group of investments that are combined based on ratings, value and other factors
  • Can be purchased from a variety of brokerages
  • Available in multiple options like mutual funds, index funds, or exchange traded funds 
  • Pricing ranges from $100 dollars to $5,000 for minimums based on the type 

Retirement Accounts

  • Retirement accounts are investment accounts that allow you to save for the future
  • Usually backed by employers, state retirement systems, or self-employed individuals
  • Limited to between $5,500 and $66,000 based on type and tax status of the investor
  • Can be self directed or actively managed
  • 401(k) and an IRA are two popular types of retirement accounts 

Cryptocurrency

  • Cryptocurrency is a digitized coin based on blockchain technology
  • Range in price from $0.01 to $$70,000 in value
  • Can be purchased from dozens of exchanges
  • Allow passive or active investing

Real Estate 

  • Real estate investing is acquiring the ownership of a property or set of properties
  • Can be purchased via brokers, mortgage lenders, banks, or directly from owners
  • Available in options such as real estate investment trusts (REITS), commercial properties, investment properties, rental properties, or home purchases
  • Offer a variety of tax incentives and bonuses 

Plan a Solid Investing Strategy

Planning an investment strategy can be as simple as creating a budget, with the difference being that you are planning for the purposes of long term or short term gains versus expenses. 

The best way to come up with a plan is to look at your savings goals and the amount of time that you plan to invest for. Once you have an idea, then you can begin to create your portfolio which will consist of various types of equities, currencies, assets, and cash, with each one representing a certain percentage of your savings. 

Keep Learning and Saving

Everyone learns from experience in the general sense and in the realm of investing, sometimes it can be the most optimal way to learn. A good way to maximize on positive gains is to learn to study patterns of investments that are consistently profitable as well as read up on some materials that break down the fluctuations of the markets. On the other hand, if you find that your funds are dwindling at a rapid pace, it may be time to re-evaluate your strategy or reduce your exposure in certain areas.

The Bottom Line 

Investing is one of the best things that you can do with your money in order to build a solid future. However, it’s also not without risks, and you can lose a tremendous amount of money if you aren’t properly versed in the world of finance. 

To protect your funds and make sure that you are on the right track, it’s a good idea to begin with minimal amounts of money, while you get to know the ins and outs of the investment world. Once you have your strategy down, and are sure that you aren’t risking more than you can afford, you will be able to sit back and enjoy the ride.

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