Investing is a passport to building wealth and gaining financial independence. The sooner you start, the better it is, but it is a complex concept in personal finances to get a handle on. When you are new to the investment world, you will likely be hesitant about dipping your toe in the water. Fear and doubts will grip you and put you off.
It is quite obvious to fight shy of investing money when you are new to it, but there are a few tips to get started. First, you understand all types of investments and how they work to set goals, so you know what you want to achieve and take the plunge. You might need to get some advice from a financial expert every now and then so you are on track with your goals.
Investing has a lot of benefits, the main one being that it will help build your wealth by preventing your money from losing its present value. When you see your money growing, you feel less need to take out a loan for very bad credit in case of financial emergencies.
Tips for beginners to get started investing money
If you new to the investment world and looking to grow your wealth, you should use the following tips to get started:
- Decide your investment goals
A lot of investment options are out there, and which one you will invest in depends on your goals. Are you simply looking to save money for retirement or for the down payment on your house? Understanding your goals and timeline determines which investing accounts should be considered.
For instance, IRA and 401(K) accounts are best for retirement purposes, but you would certainly not want to put all of your money into these accounts as you cannot cash out until you are past 59. If you do so, you will be penalised and lose tax benefits.
Your goals and the investment accounts you choose should be in agreement to ensure a smooth and simplified investing process.
- Decide on investing accounts
Once you have determined the goals, the next step is to determine investing accounts. There are two main types of accounts: brokerage and robo-advisor. A brokerage account is aimed at those who want to invest in stocks, mutual funds, etc. It is a good place to start if you are looking to build a portfolio. There is no cap on how much you want to invest, nor are there any restrictions about withdrawing funds.
Another investing account you can use is a robo-advisor. It is generally suitable for new beginners who are not targeting complex financial goals and personalised investing options. It is good enough to make you familiar with the investing world in exchange for little fees.
- Determine your investment affordability
The next step is to decide how much amount you can afford to invest. How much you will be able to invest depends on your investment goals and how much your current financial situation allows. If you are living paycheque to paycheque, your budget will not allow for a bigger contribution, but that is OK.
Even if you are able to contribute just 1% of your income, it is fine. It will help you keep going. As your income increases, you can grow your contribution.
- Determine your risk tolerance capacity
You cannot build an investment portfolio unless you know your risk tolerance capacity. It is paramount to know the level of risk you can afford to bear in case the market does not meet your expectations. Risk tolerance capacity refers to the amount of assets that you are comfortable losing once and for all.
You will have to do all the calculations for this. Sit with an expert, and they will help you determine how much sum you can afford to lose. Your investment strategy cannot be framed unless you know how much you can afford to lose.
- Choose investing assets to build your portfolio
Now you know how much you have to invest to achieve your financial goals. The next step is to choose investing assets to build your portfolio. There are various types of investing assets that you can think about, like stocks, mutual funds, fixed deposits and bonds. Each investment works differently.
If your risk tolerance capacity is not so high, you should avoid hefty stock investments. Bonds are safer, but returns will not be so high. The investing assets you will choose depend on your investment goals and risk-bearing capacity.
It is always advisable that you should invest in multiple assets. The more diversified your portfolio is, the higher the returns you will get. Why do experts suggest having a diversified investment portfolio so that you can prevent your assets from market risk? If one of your investments is not doing well, you can prevent yourself from losing the whole of your money.
- Reassess your portfolio over time
You cannot sit on your laurels just because you have built an investment portfolio. The market trends and scenarios keep changing, so you will have to accommodate your portfolio to get the maximum benefit from it. From time to time, you will have to monitor your portfolio to see how it is performing.
For instance, if you have invested 60% in stocks and 40% in safer and slower investments, it can become 70% in stocks if the stock market is exponentially rising. If you fail to take it into account, you will end up bearing a lot more risk than your calculations and bearing capacity. No doubt, you will have to keep monitoring the performance of your assets to get the maximum benefit or return.
Whether you choose a brokerage account or a robo-advisor account, both have the potential to track your investing accounts. If you choose the latter account, this will be done automatically.
The bottom line
If you are keen on building your portfolio, do not forget that you will be walking on a tightrope. A sudden market fall can significantly blow your assets, goals and financial situation. Therefore, it is always advisable that you should never make a rash decision. It is all about a game of patience and wisdom.
Description: Investing can be scary but with a little patience and knowledge, you can easily get hold of it. Understand your goals and risks while creating a portfolio.