Saving for retirement, buying a house, or building a bigger nest egg for the rainy days will get you thinking about investing.
At first, it can look like a daunting task, reserved for the shrewd wolves on Wall Street, but actually, you don’t need to have a lot of money or be Warren Buffet to get started. If you are a beginner investor, this article will guide you through the first steps.
The basic idea is to create wealth over time. The key is starting to build a habit of putting money aside to invest besides your monthly expenses. Starting with only a little money in an online savings account can be a great way to build up savings, which can then be invested.
It’s best to start investing as early as you can, it doesn’t matter if you don’t have a lot for it. In this way, your compound interest - your investment returns which start earning their own returns - will begin to kick in early.
Also, the longer time you spend investing, the more time it gives you to ride out the fluctuation of the stock market, which can make up a part of your investment if you go with stocks or a portfolio that includes stocks.
Keep in mind that investing comes with risks, and make sure only to invest money that you know you won't need in a few months. You can also lose money, so set aside an emergency fund. Also reflect on what type of investor you are, how much money you want to invest and make, how much risk you want to take, what is your risk tolerance, and what are your investment goals. These details will help you find the right product and the right strategy.
If you want to be an active investor, you will need to take the time to research yourself and manage a portfolio on your own. You can do this through an online broker.
On the other hand, passive investing means you put your money to work, and you don't need to deal with it. Investing in mutual funds is one way of doing this.
Now, all you need to do is to set up a brokerage account if you are ready to start buying stocks, bonds, mutual funds, and other instruments. You can transfer money into and out of a brokerage account and it gives you access to the stock market and other investments. Keep in mind that any returns you make here are taxed as capital gain. (Retirement accounts, such as IRAs have different tax-rules, so check if that would work better for you for retirement saving and investing.) Again, you don't need a lot of money to get started.
Most online brokers have demo accounts, where you can dip your toe into trading with fake money, and familiarize yourself with the platform and online trading.
Check out our guide to the Best brokers for beginners!
How to start investing?
Key steps you need to do before getting started
- Build a good habit of saving money every month
- Think about risk tolerance: are you okay with taking higher risks and perhaps losing some (or all your) money, or you are more comfortable with a steady but lower return
- Do some research, familiarize yourself with the basic terms (we will help you with that below)
- Set financial goals and deadlines - what you want to achieve and by when
- Find products you want to invest in and don’t forget to diversify - don’t put all your eggs in one basket
- Find a broker and set up a brokerage account