How Do I Get Started Investing?
📺 Are you hesitant to invest in the stock market?
Do you think you need a lot of money to start investing?
Does investing feel like gambling to you?
Unfortunately, these myths have also created a stereotype that investing is only something that men do.
However, the truth is that investing is accessible to anyone. In fact, studies have shown that women are often more successful investors than men due to their long-term approach and skepticism of impulsive decisions.
Before you invest, you need to have a full financial health check with your money. This means making sure you have sufficient emergency savings and are comfortably paying off your high interest debts. You also need to review your budget and know your incomings and outgoings. I can’t give your financial advice and remember that the value of your investment can go up and down!
“The key is to educate yourself on different investments available and choose investments that align with your goals and risk tolerance. Finally, it’s essential to monitor your investments regularly to ensure they remain aligned with your goals and make adjustments if necessary.”
1/ to save or to invest?
Living below your means is key to building long term wealth. Once you do that, you can start saving and investing.
Saving and investing involve setting money aside for the future, but they differ in how your money grows over time.
Saving is low-risk and earns minimal interest, while investing aims to make your money grow by taking calculated risks in the stock market. Investing offers the potential for compound growth, which is earning returns not just on your initial investment but also on any gains made. It also helps beat inflation, protecting your money's value in the long term.
Historically, over long periods of time, stocks have generally provided higher returns than cash or savings accounts.
It's important to determine whether saving or investing aligns with your financial goals, risk tolerance, and timeline.
Starting to invest can be done with small amounts of money, and with the advent of online investment platforms and free educational resources, investing is becoming more accessible to everyone.
The key is to educate yourself on different investments available and choose investments that align with your goals and risk tolerance. Finally, it's essential to monitor your investments regularly to ensure they remain aligned with your goals and make adjustments if necessary.
2/ Know why you invest
Think about your goals and decide how much you need to save in cash, and how much you’re willing to invest.
Determine your financial objectives: what do you want to accomplish with your investments? Are you investing to save for retirement, to build a down payment for a home, or to fund your child's education?
Whether you’re saving for a home or early retirement, it helps to write down what you want to get out of your long-term investments, when you need the money and how much risk you are able to take with each goal.
This will, in turn, inform your investment strategy.
You can then choose the best product for those needs which usually comes in the form of tax-efficient investment wrappers, such as pensions and ISAs.
3/ choose a platform
Investing is for everyone and thanks to the increased popularity of investing apps, it’s never been easier to get started.
You have 3 options to get started: you can use a robo-adviser, an online DIY platform or work with a financial or wealth adviser.
If you’re new to investing, a robo-adviser is an online investment service that asks you a series of questions (usually 15 simple or so), and then puts your money into a basket of investments. Remember: is not an individual that personally knows you! It works off an algorithm.
Robo-advisers usually take a passive investing approach and invest on your behalf in a diversified portfolio of low-cost funds.
If you’d like to choose and pick your investments yourself you can opt for a more DIY platform.
When choosing a platform, here are some things to consider:
First, you want to be aware of the fees that each platform has. Investing isn't free, and different platforms charge different fees for their services. Some platforms may be more expensive if they manage your investments for you, but you can switch to a more hands-on self-investment platform if you're willing to do more research on your own.
Another thing to consider is the investment options that each platform offers: do they invest on your behalf or not, do they have the product you need like a pension or a Stocks & shares ISA. What is the minimum amount you can invest with them as a one-off and regular investment?
When investing, think about tax efficiency and how to make your investing smarter using your allowances.
Tools and resources can also be a helpful factor when choosing an investment platform. Some platforms offer financial advice and educational resources that can be particularly useful for beginner investors.
You also need to make sure that the platform you choose is regulated by the FCA and protected by the FSCS, if you’re in the UK.
4/ what to invest in?
To begin investing in the stock market, it's important to have an understanding of the basics. At Vestpod's Introduction to Investing workshops, the importance of ignoring "hot" and trendy investment advice is emphasized.
While social media and advice from friends may be tempting, impulsive trading and frequent market activity can be costly and risky.
Rather than owning just a few individual stocks, investing in funds (collections of stocks and/or bonds) can reduce the risk of losing money and improve investment returns. It's important to focus on long-term investment strategies rather than reacting to short-term market trends.
Diversification is also a way of reducing potential risks and improving returns when spreading your money across different types of investments or asset classes – not putting all your eggs in the same basket to avoid breaking them all.
When you invest in stocks and bonds, you are essentially investing in two different types of assets that come with different levels of risk and potential returns. Stocks are generally considered riskier than bonds because their value can fluctuate greatly depending on the performance of the company and the overall market. However, stocks also have the potential for higher returns over the long term.
On the other hand, bonds are typically less risky than stocks because they are loans to companies or governments and come with a fixed interest rate. While bonds generally offer lower returns than stocks, they can help to diversify a portfolio and provide a more stable source of income.
In a portfolio, the relationship between stocks and bonds can help to balance risk and potential return. The more stocks you have in your portfolio, the riskier it will be, but you may also have the potential for higher returns. Conversely, the more bonds you have in your portfolio, the less risky it will be, but you may have lower potential returns. Finding the right balance of stocks and bonds that aligns with your risk tolerance and investment goals is key to building a successful investment portfolio.
5/ Invest Early and often
Investing is a long-term game, and time is a key component. You can't expect to invest in the financial markets for a year and then take your money out.
Markets are volatile and quick to react to events, so past performance is not a guide to the future. That's why experts say, "time in the market beats timing the market." Being consistently invested in the market is better than trying to figure out the best time to invest.
To maximize your investment returns, it's crucial to invest early and consistently over time. This strategy allows you to benefit from the power of compounding. Additionally, you can adopt a pound-cost averaging approach by investing a fixed amount of money regularly, regardless of market fluctuations. This strategy helps reduce the impact of short-term volatility.
Remember to focus on your long-term financial goals and not overreact to market turbulence. Despite political instability and financial crises, it's important to stay invested and trust the long-term potential of the markets.
To make things easier, set up automatic contributions for your investments and remember to enable dividend reinvestment. This way, your investment earnings will be reinvested automatically, helping your returns grow steadily.
6/ reframe risk
There is, of course, risk associated with investing in financial markets because the future is uncertain and most economic, business, political or other factors and events can cause uncertainty and can have an impact on the market.
It’s inevitable that the market will go up and down, but there are ways to mitigate risks with investing regularly over the long term in a diversified way - and I’ll come to that!
The benefits of investing are usually greater than the risks. It helped me when I reframed the idea of risk and thought about the cost of not investing now: not investing your money can also make you ‘lose’ money over time, as you have less and less purchasing power and your money is not benefiting from compound growth.
Usually people who have more time until they achieve their goals can take more risk, because when you invest money, time is playing in your favour because of your capacity to absorb loss (i.e. recover lost savings with future income, which a retiree doesn’t have the ability to do) and take less risk when your time horizon is shorter, when you approach retirement for example. But in the end, what matters most is how you personally feel about taking risk. Are you comfortable with the fact that you may lose money? Can you handle volatile markets? Or would you prefer something more stable?
The higher the potential return, the more risk you usually have to accept. The level of risk you will be willing to take will be represented by your investment portfolio and your asset allocation, and this is a very personal decision!
7/ Just keep going!
Now that you’ve started investing, it’s important to regularly reassess and review your portfolio to ensure it’s still aligned with your goals and risk tolerance. Whether that means adjusting your asset allocation, increasing your contributions, or exploring new investment options, taking action can help you stay on track to reach your financial goals.
Staying invested is your next goal - try to stay away from the constant news and noise coming from the market especially if you adopt a long term approach to investing.
8/ don’t rule out professional help
When uncertainties arise or investing becomes overly complex, consider seeking the services of a professional to guide you through the investment process. A financial advisor can help you figure things out but remember: this also comes with often hefty fees.
Building long-term wealth requires an understanding that investing and gambling are very different disciplines. Refrain from jumping onto the next en vogue investment and accept that sometimes, it’s best to adopt a rather boring investment strategy. Arm yourself with a cool head, a decent grasp of how the stock market works, and, most importantly, ample confidence — and get started with investing.
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