Investing is using your money to buy assets that can help you create wealth. The objective of investing is to create wealth or earn income. Investing money to create assets is a good idea for the future. This is something everyone needs to do right from the time he/she starts working. This can help you achieve your financial goals. Virtually everyone understands the importance of investing. The problem is that most people don’t know how to start investing. This is why we have brought out a guide to tell you how to get started with investing.
- Decide your investing goals
The first step is to decide your investing goals. The answer to the question ‘why are you investing money’ will help you decide your goals. It could be to save for retirement, it could be to save to buy a house, or to fund your child’s education. You can list out your investing goals in a clear and specific way, outlining how much money you want to create or how much income you want to earn.
- Decide how much money you want to invest
Once you decide your goals, you know how much money you are planning to create. Now keeping this in mind, you know how much money you have to invest and how much time you need to continue investing money. You can calculate this by assuming returns[i] of around 2 to 4% on safe investment options like bonds. Investing in the stock market should fetch you 7 to 10% returns.
Using these numbers, you can calculate how much money you need to invest to achieve your goals. If you cannot afford to save this money, then you may need to put in more effort to create savings. This can be done by cutting down on unnecessary expenses. You can also try to earn additional income to save more. When neither is possible, you may need to invest for a longer duration to achieve your goals.
- Decide how you want to do it
Now that you have worked out how much money you can set aside for investment, the next thing is to decide your investment approach. There are two ways of doing it:
- DIY or Do-it-yourself: Here, you need to research various options to invest money on your own. You need to do your own research and decide which assets to invest money. This needs time and understanding of investment options. If you are willing to do it, there are various resources, including on this website to help you do it yourself.
- Take professional help: If you do not have the time to do research or don’t have time to regularly monitor the performance of our investments, then you can take the help of professionals. Investment advisors are professionals who have helped many investors make money through their investments. You can select an experienced advisor with a good track record. The advisor can take you through the entire investment process in a systematic way. The advisor can even do the investments on your behalf. This is a managed investment account, where an investment manager is responsible for your investment. They may charge you a substantial fee for their services.
- Create an investment portfolio
The next step to start investing is to create an investment portfolio. A portfolio is a collection of assets in which you invest money. The different assets where you can invest money are:
- Equity: Investing in equity involves buying equity or ownership of a company. This involves buying stocks of the company through the stock market. It also can involve buying mutual funds or exchange-traded funds, where you invest money in a fund. The fund manager would then use the funds collected to buy stocks and other assets. Equity is the best option to create a lot of wealth. However, it involves risks as stocks can be volatile and its prices can fluctuate a lot.
- Debt: This is where you lend to the government or a company. This creates debt and the organization taking money from you would repay you with interest. Your earnings from debt would not be as high as equity investments, but are safe and less risky. Bonds, government securities, are bank deposits are some examples of debt assets.
- Retirement accounts: These are accounts like IRA or 401k, where you save money every month for your retirement. The account may be sponsored by your employer, who may also contribute to your account. The retirement account may invest in stocks or in bonds and safer options.
- Other options for investment include buying real estate, precious metals like gold and silver. It can also include buying paintings or riskier options like cryptocurrency.
You can use an advisors’ help or research on your own to decide which assets to buy and how much money to invest in different assets. A common rule that can be followed is to invest “100 – your age” in equity and the rest in debt. If you are 35 years old, you can invest 65% of your savings in equity.
- Start the process
Now that you have a portfolio, you can start investing in it. You can open an investment account with a brokerage or an investment company. Research different agencies and select one that has a good reputation and charges you less fees. Once you open an investment account, link it to your bank account. This ensures money can be transferred from your bank to help you buy assets regularly. Automated transfer of money ensures your investing happens automatically without your intervention. This ensures you can invest in a disciplined way.
- Keep investing and stay invested
Now that you have started the process of investing, it is important that you keep investing. Continuous investment in a disciplined way can help you create more money. Once you have invested, stay for the long run. Don’t sell your assets in between. Risky assets like equity can yield good returns when you stay invested for long term.