Investing For Beginners: Advice On How To Get Started
In this article, l will quickly share with you some of the best tips that you should take into account as a beginner investor.
Thus, read till the end if you want to learn more about this topic.
Disclaimer: I’m not a financial advisor – meaning, all the information shared in this article is based on my personal thoughts & opinions. If you need professional advice, you might need to consult an expert.
What You'll Learn:
Without further ado, let me explain each of these.
1. Start Investing As Soon As Possible
If you're reading this article – and you haven't started investing yet, it's high time you get started.
The reason being that, the power of compound interest will work in your favour – because your money will appreciate in value over time.
You must always remember the concept of compound interest i.e. $10 invested at age 20 will be worth $30 by the time you reach 40 years (@10% annual interest)
However, if that same $10 is invested at 30 years old, it will only be worth $20 by the time you reach 40 years.
Thus, the sooner you get started – the better.
2. Pay Yourself First
If you've read some personal finance books, lm pretty sure you're aware of this concept.
In order to get started with investing, you need some money to invest.
And how can you get money for investing?
That's were this concept comes into play.
You need to set-aside a portion of your earned income – which you’ll use for investing.
You must save at least 10% of your salary or business profits – and use that money for investing.
If you do this consistently, your investment portfolio will grow over time.
Now, I’m aware that most people always gives excuses like;
‘I don't have any extra money to invest’
‘My salary is just enough to cover my monthly expenses'
If you're one of these people, you might need to consider one of these options;
First, you might need to evaluate your monthly spending – so as to observe which areas are consuming unnecessary funds from you.
Once you find them, you might need to cut them off – so as to take that money & use it for investing.
For example, if you go out every weekend, you might need to stay at home – so as to avoid wasting money on entertainment.
I’m not saying that you shouldn't have any entertainment at all – NO!
But all lm saying is that, you shouldn't waste too much money on it – since this does not yield any returns for you.
Also, you can choose to take public transport instead of using your own car – so that you can use some of the gas money for investing.
Whatever decision you make – you must try by all means to cut down your expenses – so that you can spare some funds for investing.
Now, let's assume that you're living frugally i.e. your budget is too tight to make any further adjustment.
If you're that person, then you might need to consider option 2 – which is starting a side hustle.
This will help you to earn some extra income – which you can use for investing.
There's a lot of side hustles out there like freelancing, garage sale flipping, baby sitting, loan mowing, etc. – and you can just find one which you're good at.
Alternatively, you can look for a second job – which allows you to work on a part time basis e.g. weekends or evenings.
That way, you can be able to get some additional income – which you can use for investing.
Thus, you must figure out how you're going to get the money to invest – since money is a prerequisite when it comes to investing.
3. Set-Aside An Emergency Fund
Another important practice is to set-aside an emergency fund – at least 3 months worth of your living expenses.
An emergency fund is crucial because, if something goes wrong at your job/business/portfolio, you'll get something to hold-on to – whilst trying to figure out your next move.
Thus, it's important to always have an emergency fund – so that you wont struggle when anything wrong happens.
4. Invest In Yourself
The best investment that you can ever make is not in real estate, stocks, or bitcoin.
But rather, it's investing in yourself.
The biggest ROI that you can ever get is when you invest in yourself – because this allows you to acquire some skills & knowledge needed in wealth building.
That's why you see people like Warren Buffet always growing in terms of net worth – because they're always growing their financial IQ. (The more you learn, the more you earn)
Thus, it's important to invest in yourself through reading finance books, podcasts, courses, seminars, YouTube videos, etc.
That way, you can gain some knowledge – which you can use when you actually get started with investing.
Because if you don't, you’ll get into investing in blind – hence, losing your money on bad investments.
5. Invest In Long Term Passive Investments
Another tip is that, you should focus on long term passive investments e.g. Index Funds – instead of short term investments.
If you try to do active day trading, you might lose a lot of money – since this is very risky in nature.
Also, it's difficult to beat the market if you're investing in short term investments – thus, you wont get significant returns on your investments.
Thus, instead of sitting on your computer screen all day long, you should invest in long term passive vehicles like Index Funds.
In the US, the most common Index Fund is the S&P 500 – which comprise of the top 500 companies in the US stock market.
Thus, if you invest in it, your money will be spread amongst all the 500 companies – hence spreading risk.
Even if some few companies fails to perform well, you'll still get some returns from the others.
Now, let me mention this;
You shouldn't try to time the market – because it's very difficult to do so.
Instead, you should just focus on investing a certain amount per month – regardless of price – and you'll cover-up through dollar-cost averaging.
6. Balance Your Portfolio
Another important thing is to balance your investment portfolio.
Instead of just focusing on one type of stock, you should try to diversify your portfolio – so that you can have different types of stocks.
This is so important because if something happens in the market, you wont lose all your investments i.e. the surviving investments will cover-up for the affected ones.
Now, when it comes to balancing, most people prefers the 70-30-10 strategy – especially at a young age. (Offense)
The reason being that, when you're still young, you have high risk tolerance i.e. even if you lose some money, you still have more time to recover it.
However, as you grow older, you might need to be more defensive with your portfolio – because if you lose your investments, it might be too late to recover them.
7. Set Your Account On DRIP
Another important tip is to set your account on what is called DRIP.
This allows you to automatically reinvest some of your dividends – so that you can buy more shares – and keep growing your account.
This allows you to grow your portfolio much faster – compared to when you're just relying on your savings alone.
The truth is, most people don't necessarily need dividend income – especially if you have a job or business that is bringing-in significant income.
Thus, instead of withdrawing your dividends, you should just use the money to continue growing your portfolio.
8. Take Advantage Of Tax Deferred Accounts
Last but not least, you must take advantage of any tax deferred accounts (depending on your region).
This allows you to grow your investments – without having to pay too much taxes – hence, allowing you to grow much faster.
In Canada, there's the Tax Free Savings Account (TFSA) – which allows you to grow around $5500 (tax free).
This differs from region to region – thus, you must do your own research to find the policies in your region/nation.
Wrapping Up
So these are the 8 best tips that l would give to beginners – who're looking to get started with investing.
Obviously, there's more components in investing – but if you adopt some of these tips, you can set yourself up for success.
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