From the outside looking in, investing can seem pretty complicated. A good investor, generally speaking, will know their way around stocks, bonds, funds, and more, but despite what you might think, investing doesn’t require expert knowledge or a small fortune to start with. For a fresh-faced beginner just starting their investment journey, the priorities should generally be to understand the basics, set clear financial goals, and carefully choose the investments that are the best match for the risk they are prepared to take.
So, here are some things that every beginner to investing needs to know.
Stocks and Shares
Stocks and shares are all about owning your own slice of publicly traded companies. When you buy shares, you can reap the financial rewards of a company’s successes, as their share prices increase and, occasionally, dividend payments.
One of the biggest appeals of stocks and shares is the long-term benefit. This is more applicable to mainstay institutions that will continue to see steady growth for years to come. But it is also worth highlighting that a company’s value can also significantly decrease; this is especially true in volatile markets and for businesses that have recently gone public.
Beginners therefore shouldn’t invest in a company unless they are completely aware of the risks and have developed an understanding of the company and what makes it a good investment. There are tons of resources you can use to help develop your understanding, like MoneyClubIndia, among others.
Generally, the best way to go is to have a diversified portfolio with shares in a variety of companies from different industries, as this will minimise the impact of underperforming investments.
Index Funds and ETFs
Index funds and ETFs (exchange-traded funds) are among the most popular investment choices for beginners because they enable investors to invest in a variety of businesses via a single investment.
An index fund works by tracking a whole market index, instead of just one business; ETFs, meanwhile, work fairly similarly, but instead trade on stock exchanges like shares do. One of the main appeals of both index funds and ETFs is that, because they hold a variety of different investments, they spread the risk and make for a generally more secure long-term investment.
But before you invest, it’s still important to check the fund’s objectives, charges, and level of risk.
Bonds and Bond Funds
Bonds are loans that are made to governments or companies. In exchange, investors generally receive interest and the repayment of the original amount of money. Though returns aren’t exactly guaranteed, high-quality bonds are characterised by having lower credit risk and lower potential returns, and therefore present a safer option for beginners who are new to the world of investing and want to diversify their portfolios.
Pension and Retirement Investments
For anyone who’s more interested in a safer, long-term investment option, retirement investing might seem attractive, but still requires a lot of careful consideration. It’s also worth noting that different countries have different benefits when it comes to pensions. UK investors, for instance, can get tax advantages, while most employees contribute to their own workplace pension scheme.
When examining your options when it comes to your pension, it’s integral to consider factors like your income, age, retirement goals, and the savings that you currently hold. What’s more, if you can wrap your head around your pension contributions, fees, and potential tax benefits, you’ll be able to make a more informed decision.
How to Build Your Investment Plan
Before you invest a single penny, make sure that you establish an emergency fund that can help you just in case any debts are incurred. Next, make sure you know what your goals are. Set simple, clear goals that are SMART – specific, measurable, achievable, relevant, and time-based. For example, ‘I want my varied portfolio of stocks, index funds, and bonds to grow by 10% in the next 12 months’.
For beginners, investing should be about creating a sensible, sustainable plan that utilises a diverse range of investment types and has achievable goals. But understand the risks and only invest money that you’re willing to lose.