When you hear investing, you instantly think of stock markets and shares or probably significant figures of money. No, investing is nothing but that money you have been keeping aside for years while mastering the art of budgeting - now is the time to start investing it. As a newbie, we understand you might have many questions on how to, how much should you invest?
Our guide below will help you with all you need to know to get started.
Start Small but Start Now
Start, even with small amounts of money. The sooner you start, the more rigid your investing game will become over time. Let’s appreciate the Compound interest theory in accelerating the growth of your savings and investment. Compound Interest is when you earn interest on your savings, and that money is making you more part again next year, thus helping you clear the debt balances you had with time, if any.
Decide a Number
To know how much to invest, you need to revisit your investment goal and the time you need to reach it. To assume we can say everyone’s standard goal is to save for their retirement. Living your retirement dream is to start now, but how much is enough? According to Rule Thumb, always aim to save 15% of your income each year considering you start from the age of 25-60, and if you also have a retirement account at work 401(k), reaching your first investing milestone would not be too far.
Read more: Here's How You Should Invest at Every Age
Open an Investing Account
If you do not have a 401(k) account, you can switch to a traditional IRA account, which works the same way except it’ an individual account. If you invest not just for retirement, we suggest you open a brokerage investment account as it allows you to withdraw money back out, unlike the retirement account. To also clear the misconception, you do not need a lot of money to open an account. There are many schemes and offers which help you start with small amounts of money.
Choose your Investment Options Wisely
It is necessary to understand each investment option and the risk and benefits it carries along with it. Starting with the popular ones.
Stocks: Also known as equities, is a share of ownership in a company. Depending on the company, you can purchase shares on single and increased digits.
Bonds: Loan issued to a company or a government entity with a fixed or variable interest payments to the borrower. It comes with security as the person giving it is evident with the maturity date and the amount earned throughout the period.
Mutual Funds: A combination of securities is given to investors to avoid the work of individual stocks. These combined holdings are known as a portfolio. Investors buy shares in mutual funds, and these represent their ownership in it and the income it generates.
Exchange-Traded Funds: Like mutual funds, ETFs are also many securities bundled together whose prices fluctuate all day and are traded only once a day when the market closes.
The Right Investment Strategy
Investing without a strategy is like playing football without a playbook. Before picking your strategy, revisit your goals, and know your investment horizon.
Analyzing and breaking down your wealth in cash and fixed assets is one way to start and see the risk count you are up for.
- If you are a high-risk investor with a long-term investment horizon, consider small capital and growth in your portfolio.
- If you are a low-risk investor with a short-term investment horizon, you should consider solo investment opportunities.
- If you are at moderate risk with a short investment horizon, invest in value and income investing.
(Check out 'Learn & Grow with Wizely' 'to read and learn all about the basics of investments and investment planning.)