Investing isn’t just for wealthy or retired people. If you want to have a great retirement, set some money aside for a child’s college education, or plan for a major purchase, it pays to learn about investing and make smart choices that can help you reach your goals. Here are some general step-by-step guidelines to get you started.
Basic steps to getting started
To get started, you need to begin investing money regularly. While your first investment will likely be small, it’s important to start as soon as possible. The best way to do this is by paying your bills first, then investing the amount you set aside and leaving the rest for basic spending like shopping or experiences.
Related article: The underrated power of long-term investing
Consider investing in several assets like stocks, cryptocurrencies, or bonds. But keep in mind that no matter how big or small the amount of money you have available for investing is at this point, every dollar counts! Let’s dive in.
1. Investing for your future goals
Put a percentage of your income aside. As much as you can, right now. 5%, 10%, 15% – whatever the number, you can do at least some. It’s not just about the amount, it’s also about how early in life you start. The sooner you start investing, the more time your capital will have to grow and compound, which makes it worth more later on (not to mention that compounding makes an impact over a long period of time).
This is the type of chart that inspired me to start saving, investing, and compounding capital in 1990.
Bigger returns speeds up the process. pic.twitter.com/r2vIMEnd8N
— Steve Burns (@SJosephBurns) December 11, 2022
Your goal should be to put aside at least 15% of your income for retirement and other future goals. That way, even if there are rough years where you don’t make as much money or have some unexpected expenses come up, you’ll be fine. There may come a time when you have to pay off debt or buy a house or car. So, for example, invest 10% of your income and save 5% for unexpected expenses.
It doesn’t matter whether it’s buying clothes less often, going out less often, or spending less on Christmas shopping. There’s always a way to put a few bucks aside, which could be invested. Spend less than what comes in each month and invest until you reach the ultimate goal (whether it be buying real estate properties or starting a business).
2. Do your own research (DYOR)
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You can’t invest without doing research unless you invest with a financial advisor who you trust. If you’re going to be an investor, you need to make sure that the investments are right for you, regarding potential profit and risk-taking. And to do that, you must look at more than just the company itself.
Researching a company means looking at its financial statements and earnings reports. Researching an industry means studying the way it’s changing and how its competitors operate. For example, the growth of new clients at Netflix started slowing down rapidly because of rising competition. As a result, they adopted ads as an additional income stream. You need to be aware of this kind of information before investing in a company, don’t invest on FOMO (fear of missing out) or based on how you feel.
Moreover, researching a sector means finding out what kinds of businesses are in it and how they interact with each other. While researching a country or region involves looking at government policies, economic trends, and other aspects unique to those areas. For instance, Brazil’s new president is looking to cancel state-owned law, which sent a state-owned Petrobras stock down. Always DYOR.
3. Decide on a strategy – and stick to it
Warren Buffett's investment strategy pic.twitter.com/jRqE19quHz
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Before you start investing, it’s important to decide on a strategy. Do you want to invest for the long term? Or are you more interested in making short-term profits? Do you have multiple goals and priorities? If so, how do they align with your investment philosophy? Are there any special considerations that might require certain types of investments or strategies?
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Once these questions are answered and all factors considered, select one or two specific strategies that are right for both your personality and interests. Then stick to them like glue. Historically, stocks rise in the long run, so you should be in profit in a few years if you invest correctly. However, you may change up your portfolio every few years when you have a logical reason for it. If you don’t want to waste time investing, just dollar-cost average into the world’s biggest stocks or stock indices.
4. Manage your risk
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— Investro.com (@investrocom) December 5, 2022
Now that you have a better understanding of how investing works, it’s time to take the plunge. Once you’ve decided on an investment strategy and a portfolio allocation, the next step is to manage your risk. Risk tolerance is the amount of uncertainty or volatility investors are comfortable with in their portfolios.
Investors can diversify their portfolios among different types of assets (e.g., stocks, bonds) and geographic regions (e.g., domestic vs foreign). Diversification can help reduce overall portfolio volatility and lower investment costs by spreading out risk across different asset classes or regions with different levels of expected returns over time.
Rebalancing may be necessary when changes occur within a portfolio’s composition due to unexpected events such as market crashes or changes in economic conditions. It’s crucial to consider tax laws and use them to your benefit if possible. Rebalancing could also be considered after achieving certain milestones, like age limits or desired balance goals.
4 practical tips on how to invest wisely
- Pick a solid strategy – you don’t need to make thousands of percent to accumulate wealth. It all starts with $100 or $200 a month invested, and suddenly you may have a $10,000 balance in a few years. Avoid speculating and pick a strategy that works. For example, dollar-cost averaging, investing in US stock indices after every 5% drop, or dividend stocks.
- Diversify your portfolio – it’s important to have a well-rounded investment plan, and that includes not putting all your money into one stock. If you’re looking for stable growth, consider adding some bond funds or ETFs from different sectors. You could put some in technology or health care, for example. By diversifying, you manage and lower your risk.
- Think and invest long term – when you’re investing for retirement or another long-term goal like kids savings, it’s important not to take large risks with your investments because they’ll be sitting there over many years. Instead of speculating on the next big thing with your money, find a strategy that works with what you’ve got now and stick with it. Even if there are short-term fluctuations in the market. Especially then! This will help ensure that your capital will be worth more in the future rather than losing value due to poor choices made earlier on down the line.
- Invest where there is fear and silence – media are notorious for recommending certain investments, and then they drop. For example, Jim Cramer recommended Bear Sterns stocks in 2008, Meta at the beginning of 2022, and much more. That is why they also created a Jim Cramer Inverse ETF. But the main point is to avoid what the media thinks and DYOR.
It’s important to remember that with any investment, it’s not just about the money. Investing is a process that can take real time and effort—but it also offers you a way to create more wealth and secure in your future. If you put in the work now, investing will be worth it later down the road.
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