Investing for Everyone
Embarking on your investment journey can be both exciting and daunting, especially if you’re new to the world of finance.
The good news is that you don’t need to be a financial wizard to make sound investment decisions. With a few basic principles and a bit of guidance, you can start building a strong financial foundation.
Here’s a simple guide to help you get started on your investment journey.
Understand the Basics
Before diving into investments, it’s important to grasp some fundamental concepts:
- Investment Classes: Various assets into which you invest your money, i.e. stocks, bonds, or real estate with the hope of making a profit or generating income.
- Risk and Return: The potential gain from an investment typically correlates with the risk involved. Higher returns usually come with higher risks.
- Diversification: Spreading your investments across different assets to reduce risk.
However, not too diverse. Focus on what you know and your stress level will be reduced.
For example, I am experienced with Stock Options and strategies to offset risk in stock ownership. I know little about cryptocurrencies.
Set Clear Financial Goals
Define what you want to achieve with your investments. Are you saving for retirement, a down payment on a house, or a child’s education?
Having clear goals will help you determine the appropriate investment strategy.
Start with a Budget
Ensure you have a solid budget in place. Track your income and expenses, and identify areas where you can save. Establishing an emergency fund (typically three to six months’ worth of expenses) is crucial before making any significant investments.
Insist upon a ‘Pay Yourself First’ philosophy. 20% of your gross income is a great target for getting started. If you can invest a higher percentage, Do It! If you can’t invest that much, put as much as you can and as your debts shrink, grow this percentage.
Learn About Different Types of Investments
There are probably investment classes about which you have some working knowledge or want to learn more about something new. Don’t try to learn everything, it will just become noise and possibly confuse more than it helps. But with time, you may want to dig into another stream of income with one of these options:
- Stocks: Buying shares in a company, which can offer high returns but also come with higher risk.
- Bonds: Loans to a company or government that pay you interest over time. Generally less risky than stocks but offer lower returns.
- Mutual Funds: Pools of money from many investors to buy a diversified portfolio of stocks, bonds, or other securities. They offer diversification and professional management.
- Real Estate: Investing in property, which can provide rental income, potential appreciation, and tax benefits.
- ETFs (Exchange-Traded Funds): Similar to mutual funds but traded on stock exchanges like individual stocks, but often charge lower fees than mutual funds.
- Derivatives – These are a more advanced form of investing including Futures and Options that offer leveraged growth opportunities.
- Crypto Currency – Investing in a digital currency or related products and services is a high-volatility type of investment.
- Life Insurance – Yes, there is a strategy that invests in life insurance where you become your own bank, tax-free! THIS IS GOLD!
- Buy an established business – Businesses go up for sale all the time. Owners want to retire, cash out, or struggle with it. Franchising would also be included in this category of investment.
New Idea – Consider a Robo-Advisor!
If you’re not comfortable selecting investments on your own, a robo-advisor can help. These are automated platforms that create and manage a diversified portfolio based on your risk tolerance and financial goals. They typically have lower fees than traditional financial advisors.
Full disclosure: We have not explored this option, but we will and will update this section when we do.
Start Small
You don’t need a lot of money to start investing. Many platforms allow you to begin with a small amount of money. Consistency is key—regularly investing even small amounts can grow significantly over time thanks to the power of compounding.
Some platforms, like WeBull, actually have a paper trading feature that allows you to practice trades with virtual money to get you used to the process and test out various strategies before you put your money in.
We have WeBull and RobinHood accounts and are pleased with both. RobinHood is great to get started, while WeBull has more sophisticated trading options. Both are practically free trades.
Stay Informed and Educated
Investing is a learning process. Leverage online resources, books, and courses to enhance your understanding.
Staying informed about market trends and economic news can also help you make better investment decisions.
Avoid Common Pitfalls
- Chasing High Returns: Be wary of investments that promise high returns with little risk.
If it sounds too good to be true, it probably is. - Timing the Market: Trying to buy low and sell high can be tempting, but it’s difficult to do consistently.
Instead, focus on long-term investing. - Not Sticking to Your Plan – markets move and there is no way around it. Understanding market sentiment and avoiding rash actions will serve you well.
- Ignoring Fees: Pay attention to fees associated with investments, as they can eat into your returns over time.
Have Patience?
Conventional wisdom views investing as a long-term endeavor. ‘Markets will have ups and downs, but historically, they tend to grow over time.’ ‘With dollar cost averaging, you will persevere through tough markets and be ok.’
Will you be happy with 10 to 16% growth year over year? You will get to where you are going in 30+ years. With 10% growth, it will take over 7 years to double your money (and factoring in inflation, it isn’t really doubled, is it?). 16% would take 4.5 years to double your money.
We expand the conventional wisdom paradigm to say, that accumulation without cash flow will not get you where you want to be any time soon. We want to live our best lives now and not wait until we are in our 70s to travel and do things we want.
Develop a good plan, stick to it, and watch your wealth grow this year and into the future where the only limit is you!
It’s OK to Seek Professional Advice
If you’re unsure about where to start or how to manage your investments, consider consulting with a financial advisor. They can provide personalized advice based on your financial situation and goals.
However, make sure they are aligned with your investing goals. We will soon have some recommendations of advisors from which to choose.
Conclusion
Starting your investment journey may seem overwhelming, but by taking small, informed steps, you can build a strong financial foundation.
Remember to set clear goals, diversify your investments, stay educated, and have patience.
Over time, these practices will help you achieve financial security and grow your wealth.
Happy and prosperous investing!
