Despite the fact that investing is often advised as essential to your financial future, it can often seem very complicated for those who are new to the process. Investors that are just starting out often find themselves asking a huge number of questions, such as what to invest in? When should you start investing? Where should you go for investing advice? What investing advice should be avoided? The good news is that there are answers out there to all of your investing-related questions, and while getting started with investing might seem complicated right now, it doesn’t need to be.
Whether you have just started to think about potentially investing your money in the future or are in the process of learning more about the different types of investment, we’ve got some straightforward tips for beginners to help make the process less complicated.
One of the biggest mistakes that many beginner investors make is simply waiting around too long for the ‘perfect time’ to get started with investing. But the truth is that it is hardly ever going to be the ideal time for you when you have this mindset. Instead, find an investment option that works well with your current situation and circumstances and start as soon as you can. If you are wondering when the best time to start investing is, the answer is right now. Start as soon as possible and keep adding to your portfolio. It’s also a wise idea to be prepared for your investment to go down in the first year; this is typical and doesn’t mean you’re doing anything wrong.
Set Investment Goals
The first step to a solid and successful investment strategy is having clear investment goals. Before you get started, it’s a wise idea to set out your goals for investment over the short-, medium- and long-term and give them a timeframe and a goal amount that you would like to hit. For example, a short-term goal could be to make enough to pay for a vacation next year, while a medium-term goal could be getting together enough to make a down-payment on a new house in the next few years. Long-term investment goals could involve saving for your retirement. When you have goals to work towards, it’s easier to stay motivated to continue saving and investing and makes it easier for you to determine how best to invest for each timeframe.
Do Your Research
When it comes to investment options, there is certainly no shortage of different routes that you can take. It is advisable to start off with one type of investment that is typically easy for beginners and relatively low risk, since this will allow you to get into a habit of investing and learn more about how it all works. The stock market is a popular investment option with beginners since it is one of the most well-known investment options worldwide and is relatively easy to understand. Investing in stocks involves purchasing a share of ownership in a publicly owned company, with the aim to sell your shares when the value goes up. You can learn more about how to start buying stocks Canada at Wealthsimple.com. Wealthsimple offers a wide range of investment options plus access to experienced financial advisors who can help you make the best decisions with your money and put together a tailored plan designed to help you grow your wealth the way that you want.
Build an Emergency Fund
Prior to investing, it is a wise idea to focus on building an emergency fund that is adequate enough to cover around six to nine months of your regular expenses. Having an emergency fund to fall back on, especially if you plan to rely on investing for a large number of future purchases or retirement plans, will provide peace of mind and lower your risk levels. Building your emergency fund can take time, but you can speed up the process by taking steps to reduce your monthly expenses and pay down debt, freeing up money that you can add to your emergency fund instead.
Understand Your Risk Tolerance
Each investor will have a different tolerance level when it comes to risk. You should only ever take on as much investment as you can handle in terms of risk. Just because you might be able to afford to take on more risk with your investments, does not always mean that it is a good idea. Bear in mind that more stocks equal higher risk, and it’s always better to start off with a very low-risk level. Gradually build up the level of risk that you take on as you become more experienced with investing, giving yourself a chance to figure out where your boundaries are.
Keep Costs Low
While it might not be possible to ever control how your investments are performing, one thing that you are in complete control of is how much you pay for them. When you first start out as an investor, it’s important that you pay careful attention to the costs involved in any investment that you make. Generally, this means favouring index funds rather than actively managed funds, since the latter tend to average much higher expense ratios, which can cut into the return on your investment over the long-term.
Use Automation Tools
Once you have set up your investments and are ready to get started, it’s a good idea to automate as much of your investing process as possible. Automation will take care of most things for you, giving you the chance to relax and watch your wealth grow without the need to worry about making payments or transferring money. Set up automatic deposits into your savings account, retirement plan, and any other investment portfolios you have. The less that you have to do manually as a new investor, the less overwhelming the entire process is likely to be – improving your chance of sticking with it.
Ask for Help When You Need It
Investing shouldn’t have to be something that you need to tackle alone. And if you’re new to investing and in no way an expert, asking for help can be one of the best things that you do for yourself. Today, as investing becomes increasingly popular among the general population, there has never been a bigger abundance of advice and resources available to those who want to get started. Many experienced investors are more than happy to answer your questions – no matter how silly you think that they may be, so look for ways to surround yourself with people who you can get support from, such as joining relevant social media groups or frequenting financial forums. Working with a financial advisor is also a good idea since they can help you navigate financial uncertainties and put together an investment plan that fits your circumstances and goals well.
Start with Broad-Based Investments
Another big question that many new investors face is what they should invest in. It can be very easy to overthink and get hung up when it comes to choosing the right type of investment for you since there are just so many different ones to choose from. A simple and effective way to begin that tends to work out for most beginner investors is with broad-based investments such as exchange-traded and mutual funds, which pool the money of several investors to purchase a range of securities.
Don’t Be Afraid of Risks
While it’s important to know your risk tolerance and start investing with a relatively low-risk level, it’s also important to push yourself to take more risks as you become more experienced with investing. Often, the best time get involved with buying stocks, for example, is during a recession when a lot of investors are getting worried and selling off valuable assets for a much lower price than you would usually expect – this can be a risk, but it’s also often one of the best ways to make some serious cash.
Set an Investment Budget
One of the best things about investing is that you can diversify and create an individual portfolio that suits you. You can invest as much or as little as you want in any company that you like, and with patience and perseverance, earn a huge return on your investment. However, it’s also important to make sure that you do not get carried away. Investing money is only worthwhile if you can afford to lose the money that you spend on the investments you make. Don’t invest your mortgage payment for the month – only invest money that you don’t need right now.
Getting started with investing is all about learning and educating yourself, getting to know your own preferred strategies and risk tolerance, and coming up with an investment portfolio that works well for you. Investing can be highly personalised, so there’s no need to wait around for the ‘right time’ to come along – there are options available that you can take advantage of to start investing with as little as $1.