Investing is a significant step in furthering your money.
We all understand that it is important to start investing almost as soon as we can.
But the problem is often how to start investing?
As you move forward, you start to understand that this is more of a habit.
But the challenge is often about getting started.
Irrespective of how much you earn, it can never be enough.
So, there is that constant tug of war about how to spare this additional fund.
You keep shifting your plans every month.
But prudence will tell you that it is best to start before it is too late.
This is one of the essential steps that can help you amass wealth.
It helps you give confidence as well as security for most eventualities in life.
But remember an investment does not grow overnight.
It needs a gradual and systematic approach as you start investing.
Investing is essentially about managing your money in a profitable manner.
That also involves developing some key area expertise and building on existing resources.
As a result, you have to follow a step by step method to start investing.
This will make sure that you are not overstretching or going beyond your means.
At the same time, it is the best way to ensure that you are optimizing the value of every dollar you earn.
That is perhaps the most important step in the whole calculation.
Creating a value for money proposition will help you decide on more sustainable investment options.
That makes sure that you are able to set aside some amount of money at regular interval.
This planning is always the first step towards effective investing.
Start Investing in 7 Steps
So… here is how to start investing in 7 steps:
- Decide on How Much You Can Invest
- Set Your Targets
- Decide on Risk Appetite
- Get a Handle on Basics
- Contact a Financial Planner
- Choose Your Investment Style
- Analyze the Cost of Investment
Step 1) Decide on How Much You Can Invest
Getting your finances in order can be a tough ask.
Accounting for all your debt, liabilities, payments is very important for this.
You have to make an accurate assumption of how much spare cash you will have in hand.
But before that, you have to take stock of your debt and monthly expenses.
That alone will help you decide on the exact amount of investment you can undertake on a monthly basis.
This will also be directly proportional to the time and the extent of interest you hope to earn.
Different means of investment will yield different degrees of interest.
Now you have to calculate the time period and the amount of money that you want at the end of a given period.
When you consider all these factors, you can make a realistic assessment.
The basic thumb rule is you must be able to invest at least 30% of your earnings.
But that may not be possible for everyone or everybody.
So when you are deciding on the amount of money, you have to take everything into consideration.
The amount that you eventually decide has to be something that you can invest regularly.
At the same time, this amount has to be invested in a steady fashion.
So you must decide on your ultimate investment goals accordingly.
That will help you create a proper debt repayment plan as well.
Striking the fine balance between the maximum you can invest and the minimum you need to spend is crucial.
That ultimately goes to formulate a holistic long-term investment plan.
It is often the first step to start investing.
Step 2) Set Your Targets
Once you have a clear idea about the amount of money you can set aside, you need to build your target.
This is a cardinal rule of how to start investing.
It is almost inevitable that you may lose your motivation to save at any point of time.
This kind of target based investment will help you remain on track.
It will make sure that you work towards achieving your target irrespective of all odds.
Of course, I do understand that different types of investors will have different goals.
The degree and frequency of investment will also differ.
But despite that, there are some constants at work.
All of us need a certain amount of health insurance, retirement kitty and money to meet educational expenses for kids.
Once you set a target for each of these, it becomes that much simpler to work towards that objective.
Moreover, it also helps you in choosing the vehicles of investment.
For example, if you target saving X amount for retirement, it is always better to choose traditional options like IRA.
Also once you have the target in mind, certain related facts also come to light.
Different types of investments need different degrees of security.
The means to preserve capital is quite different for different types of investment.
All of these are closely linked to the overall objective involved.
Creating targets also help in self-assessment.
You don’t have to depend on anyone to identify how much money you have saved.
Also, you would not have to constantly keep worrying if it is enough.
You have made your calculations and started investing accordingly.
Now you only have to start waiting for the rewards.
Step 3) Decide on Risk Appetite
Just like the targets you decided help you to choose the investment instrument, the risk appetite also helps.
For example, you are looking at fast returns so stocks may be a good option.
But if your risk appetite is not high, you may have to make do with stock Mutual Funds.
Effectively then you are gradually calibrating your objective as per the risk you are ready to take.
Those with higher risk appetite will look for higher reward products for investing.
But you may also start to invest in moderate reward instruments if you don’t want to take a huge risk.
Remember, in the world of investment, you never have a definitive yes or no.
All types of investment instrument are worth the try provided they help you generate the target returns.
At the end of the day, it is a relative game.
Your age and financial condition will also dictate your risk appetite.
If the total invested amount is only a minuscule portion of your net cash levels, you will not be too worried.
You may even be ready to gamble with it a lot easily.
Conversely, if the amount of money in consideration is all your life savings, you will be more cautious.
You cannot just gamble with it that easily.
Higher risk surely yields better returns, but it is always important to assess the collateral damage.
You can never assess your risk appetite in isolation.
It is always dependent on several factors.
But the most important aspect is the extent of losses that you may be able to digest.
That is what will go on to shape the long-term investment construct.
Step 4) Get a Handle on Basics
The challenge is what do you choose and what you don’t.
Of course, most experts will tell you that this will be decided completely by your targets.
Yes, your investment objective surely plays an important role.
But even then, it is essential to make an informed choice.
While you don’t really have to be a financial expert, it is important to know where or what you are investing in.
Often the relative rate of return is closely determined by this fact.
You have to be comfortable with the market lingo and know how much to invest where.
Even the basic concept of diversification is a function of this very factor.
Remember appropriate knowledge will equip you to make profitable choices.
It also helps you assess the required risk in an appropriate fashion
Without required knowledge, you may end up making wrong investment choices.
They not only jeopardize the rate of return but you can lose a significant amount of money.
You can decide to take up a plethora of short-term courses about the market and investment.
You can also enhance your knowledge by listening to the market and investment-oriented shows.
The most effective one is, of course, increasing the ambit of your reading.
From biographies to special investment bulletins, the market is flooded with a variety of books.
You can choose to read on just about any investment related topic that you like.
This will ensure that you are able to update your knowledge base at regular intervals as well.
This is also an important part of your knowledge gathering initiative.
It will help you to further your understanding and boost your investment.
Step 5) Contact a Financial Planner
But when you start, it is very important to be cautious.
That alone will help you stay on track with your investment goals.
It is for this reason that when you are learning how to start investing, contact a financial planner.
You may or may not employ a full-time financial planner.
But at least in the initial stage, a financial planner will be able to offer a better direction.
They can handhold you in a more effective manner.
You will also get a more definitive direction to your trade.
Most times, investors take refuge in the comfort of mutual funds.
But a financial planner helps you provide information about many other types of investment.
They may be able to offer you a few more options that conform to your risk appetite without compromising returns.
Basically a financial planner offers you the insight the options with best possible growth.
They can also help you formulate a plan that can effectively meet your long-term investment targets.
The best part is you don’t have to go too far looking for them.
Most banks employ financial planners or you can even visit independent financial houses.
These planners may not invest on your behalf but they will definitely tell you how to go about it.
They will also give you ideas on ways to spread your risk constructively.
Moreover how to determine the fund allocation is a key concern for most who start investing.
The financial planner can easily provide a broad investment plan.
It is common knowledge that online investing is the best way to start in the current scenario.
Here again, the financial planner can help you input on how to start investing online.
Step 6) Choose Your Investment Style
But trust me when you are grappling with how to start investing, this is a major challenge.
Different types of investors have different styles and they may all be effective.
Investing, you see, is a subjective matter.
Unlike a mathematics formula, there is never only one right way to do it.
You can handle it in many ways and still get adequate returns from it.
For example, my granddad only invested in fixed deposits and post office savings instruments.
A chunk of his retirement fund was stacked away in pension.
But he did not provide adequately for children’s education.
As a result, my dad had to work towards paying off his educational loan in the initial years of his service.
But he did not want to miss out on the advantages of saving early and the savings all those years of debt paying may have yielded.
So he chose to invest in gold and mutual fund along with Fixed deposits and post office savings.
But after their retirement, both my grand-dad and my dad were able to meet their investment target.
That meant that they were financially secure and independent after retirement.
None of them had to depend on their children to provide for their needs.
Therefore, it is important to work out your own investment style.
You may be a conservative or unorthodox investor.
You may be keen to take the risk or shun risk at all cost.
Whatever the pre-condition may be, your individual investment style is always the best option.
It helps you to invest comfortably without compromising on the rate of returns.
Moreover, it is always a more secure way of investing.
Step 7) Analyze the Cost of Investment
When you start investing, this is one of the most common challenges.
You can enjoy a projected rate of return only if you don’t end up paying too much in transactional charges.
Let us say, you have learned that investing in X stock can generate Y returns.
Maybe the X stock actually generates that much return.
But your profit will be Y-T, where T stands for transaction cost.
This transaction cost can be brokerage, load factors, taxes and any other liability.
Basically this is the expense that you have to incur for investing in a specific product.
If this expense is higher than your rate of return then your entire profit gets eroded.
So you have to be very careful when you are assessing your cost.
Without proper cost calculation, you may end up with deep losses.
For investors who are just learning how to start investing, this is a crucial factor.
The chances are they will have higher overhead costs.
Be it hiring financial planners or stock brokers.
So the onus is on them how they can manage the expense- profit balance effectively.
Most times, this is also a key consideration where financial planners can help you significantly.
Therefore, when you start investing, making an informed choice is a primary necessity.
From deciding the target to choosing the instrument for investment, area expertise is crucial.
But learning about investing is not really rocket science.
With a bit of patience and application, you can easily master on the issue.
Thorough research will also help you stay on track, in terms of meeting your investment goals.
Thankfully today a lot of reading material is available to guide you through the entire process.
But if you do not have time to read many books or attend TV shows, simply read this guide on how to start investing.
We promise to offer the most needed edge to your investing techniques.
This will also help you in start investing like experts.