How to Start Investing as a Beginner | Personal Finance Views

Monday, August 24, 2020

How to Start Investing as a Beginner

 Looking to start building wealth by investing?

Today, I have a great article from Neiko Johnson on how to get started with investing even if you are a beginner. Neiko and his wife paid off $240,000 in 27 months and they share their finance knowledge and debt-free journey on their blog Secret to Finance. The primary focus of their blog talks about budgeting, paying off debt, money tips, building generational wealth, and increasing income with side hustles.

When it comes to investing, it does not have to be complicated. In fact, it can be simple and very rewarding. That is to say, you can earn similar returns compared to someone with detailed strategies.

Start Investing as a Beginner
 

There are a range of options when it comes to choosing your investing approach. Of course, you can find a financial advisor to assist and guide you along the investing journey. On the other hand, you can use the DIY model, which would remove the advisory fees you would normally incur.

Being new to investing, you will have a lot of questions such as: how do I get started investing or what is the best strategy?

Use these tips to help you answer your questions and get started investing.

Get started investing as early as possible 

One of the most important ways to see good returns on your money is to start investing as early as possible. This is a result of compound interest, which is how your investments start earning money on their own. The great thing about compound interest is that it allows your account balance to grow over time.

However, there will be ups and downs when investing. But you must play the long game and stay committed to your investments. You will have decades to let your money grow.

Most importantly, start investing now even if it is a small amount of money. Investing is important for you to start building financial security and generational wealth.

Understand the available investment options

The main thing I love about investing is I get to choose what I invest in. I always suggest investing in things that you understand. Stay away from investing in things you are not comfortable with. In fact, just because someone else was successful at investing in a certain thing does not mean you will be.

That is to say, you can invest through a 401(k) or similar employer retirement plan, in a traditional or Roth IRA, or a standard investment account.

Each type of investment carries a certain amount of risk and you must understand which is the best for you.

A few popular investments for those just starting include:

  • Stocks
  • Bonds
  • Mutual funds

A stock is a share of ownership in a single company, which are also known as equities. I recommend purchasing stocks through mutual funds instead of buying single stocks.

A bond is a loan to a company or government entity. In return, they will pay you back in a certain number of years with interest. This type of investment is considered less risky since you know when you will be paid back and how much you will receive. On the other hand, the returns are usually lower over time. So, it is a good idea to diversify your portfolio and not invest in all bonds.

A mutual fund is a collection of investments mixed together. You can purchase a diverse group rather than picking individual stocks and bonds. Additionally, you can have some of your mutual funds managed by a professional. 

Decide on an investment strategy

It is important to create an investment strategy that is based on your savings goals. You must decide how much money you need to reach your savings goals and the amount of time you have left.

If you are investing at a younger age, you can be more aggressive and invest mostly in stocks. However, choosing stocks can be complicated if you are not familiar with them. So, it is usually best to invest in stocks through mutual funds, index funds, or ETFs.

If your savings goals are more short-term, you may want to play it safe and keep your money in a money market account or an online savings account. For money you need within the next 5 years, it is a better idea to stay away from long-term investment options. The safety and liquidity are important when you know for sure that you will need that money.

Final words – how to start investing as a beginner

To conclude, investing is a great thing to do as early as possible. Important to remember, you need to have clear objectives and goals to make sure your money is working for you the way it should. This is crucial so you know you are making sound decisions and not wasting money.

Take some time to think through how you want to invest and come up with a strategy. There are a lot of resources out there with great information if you are not sure where to start.

Be sure you do the necessary research and understand what you are investing in and plan to invest over the long term.

No comments: