Investing 101. Get ready for your financial future

 

Beginning your investing journey may seem tricky. But with the right knowledge you’re going to have all the tools you need to get started. This guide is going to show you the steps you need to follow if you want to start investing and start improving your financial prospects.

Step 1 – How Much Do You Need?

Contrary to what some people think, you don’t need a lot of money to start investing. You can start investing with less than $500. Even a small amount over thirty years at a modest 5% growth rate will leave you with tens of thousands of dollars. $100 a month at 5% will give you a $84,177.52 nest egg in 30 years.

And you don’t need to be a financial whizz to make that happen.

You should start with a personalized saving plan. Every time you get your pay check set a little aside for investment purposes. This can be done automatically via instructions sent to your bank, or taken straight from your paycheck if you get your company match (which you should, since that is an instant 100% return).

Step 2 – Who Will You Work With?

In the United States, you can’t personally send instructions to a company asking to purchase their shares. You need to work through a brokerage firm, like Motif Investing. Luckily, there are literally hundreds of reputable brokerages available. Many of them have low management fees and target micro investors.

Here is a review of the best online brokerage accounts.

You need to decide which services you want from your account provider. I recommend starting out with the basics, investing $100 or whatever you can afford into some index funds, and going from there.

Step 3 – What Should You Invest In?

First-time investors should always stick to low-risk options. This means you should stick to indexes, like the S&P500 or the UK FTSE100, and shares in large companies. Indexes and shares in large companies tend to have less market movement and have the capital to protect themselves in the event of financial disaster. The more you diversify, the lower your risk.

In the beginning, you shouldn’t be taking big positions in any one stock. Work on building up a solid base within your financial portfolio. Only later, when you get more educated about the markets and how they work, can you allocate small amounts of money to riskier trades. Anything you don’t fully understand will be a gamble, so be ready to lose.

Step 4 – How Should You Manage Your Income?

Many investments will pay you what’s known as a dividend. This is an amount of money paid out to shareholders from the company to entice them to stick with the company. Not every company provides dividends, though. Some will also pay dividends quarterly, biannually, or simply once a year.

These dividends should be automatically reinvested in that company, so you can build up your holding over time. This will ultimately make your portfolio more profitable as your money compounds year after year. Dividend money will start to make you more money!

Step 5 – How Should You Manage Your Money in a Secure Way?

First, you need to be conscious of that you are here for the long-term. The returns in the short-term might seem pathetic, but due to compounding, the long-term results can be very rewarding. When you put that money into your brokerage account, make sure it’s money you can afford to lose and money you’re not going to need down the line. Or money you would have to pull out next month for an emergency.

Secondly, think of your entire portfolio as a pyramid. At the bottom, the base of that pyramid should be made up by the majority of your portfolio and should be there for the long haul. Only at the very top of that pyramid should you be experimenting with startups and other risky ventures.

The Path of the Investor

It’s not difficult to make at least a modest return on your investment. The path of the investor simply requires financial discipline and a willingness to wait. Even those who lack any financial aptitude can get better returns than most actively managed funds if they stick to indexes. Don’t think you are Buffett and can get double digits every year. Simply invest regularly, be patient, and let the markets grow.