Financial investing has long seemed like a game for the super-rich and those already involved in the financial industry – because the perceived wisdom is that you need big pockets and lots of knowledge.
These days, however, that is not the case. You can start investing your money if you have a smartphone (opens in a new tab)and it’s never been easier or faster to start making money with your money.
Despite this, knowledge is still power – so it’s worth reading the process before you start throwing your money into stocks, stocks and funds.
Our guide will help any beginner take their first steps into the world of investing. If you want more guidance for your career path, here’s how Earn money by starting your own job site – and here’s how perfect your elevator pitch.
Should you invest?
Many people see easy investment methods and bank success stories and conclude that they should invest their money right away, but there are a few questions you should ask yourself before making any financial decisions.
The main factor? You need to make sure you have enough money to invest and can afford to lose it. Although no one wants this worst-case scenario to happen, you should be aware of the risks involved and you should never invest more than you can afford to lose.
You should also ask yourself why you want to invest. You may want to generate funds for your retirement, increase your savings, or simply raise funds for a fun purchase. The end goal of your investment should influence the level of risk you are willing to accept.
New investors should also think about the time period they want to work with. If you need a short-term gain, investing may not be the best option, but people willing to take a longer-term view will likely have a better chance of success.
There are three common categories of investments that you should consider as a beginner. Stocks are tiny pieces of a company – you buy them with the expectation that the company will perform well and increase in value, thus increasing the value of your slice of the pie, but poor performance will reduce its value. Some stocks also allow you to earn an annual dividend, where companies share profits with shareholders.
A bond is a method of investing where you lend money to a government or corporation in the hope that they will invest it wisely and earn you a return.
The last common investment option, a fund, is becoming increasingly popular. It is a system where you invest in a collection of stocks and bonds chosen by experts. They’re usually organized by topic — like tech companies or companies based in a certain country — and they make investing simple.
For starters, most of these options are accessible in the UK through an ISA. It’s a bank account you can put money into for investing – and it’s tax-free, so you can keep all the money you generate.
Some banks and organizations allow you to open a basic ISA while they select and manage investments. Many other platforms allow users to open ISAs and then choose the stocks, bonds, and funds the money is invested in.
Different investment options all carry different levels of risk. Bonds tend to be low risk, while stocks carry a lot of variety – some companies will naturally be more volatile than others. Funds are also built around distinct levels of risk, with some designed to be safer bets alongside others with more responsibility. As always, higher risk usually equals greater rewards.
You need to follow some solid rules if you want to start investing. Don’t invest more than you can afford to lose, and try to diversify your investments – so you won’t lose it all if an investment goes bad. Monitor your investments regularly and don’t panic. Just because a good has lost value doesn’t mean it will never recover.
How to start investing
You don’t need to go to the stock market or manage complex computer screens to start investing your money – just grab your smartphone.
The easiest way for a beginner to start investing is to use a third-party platform. There are many stock trading apps (opens in a new tab) around, and big names like Nutmeg, Fidelity, E*Trade, and Evestor tend to offer thousands of funds.
Many beginner investment platforms specialize in ready-to-use funds that take the guesswork out of where to invest your money. You are often able to choose funds based on themes, industries or risk levels, and robo-advisor platforms make it even easier by choosing funds for you based on the level of risk you you want to take. Sites like Personal Capital and Plum are among the easiest options. Many apps like this also let you buy shares in individual companies if that’s what you prefer.
You need to do your research to find a platform with the right level of simplicity and risk for you. Beginners would do well to choose a platform with a simple smartphone app and website that makes it easy to pick common and common investments and track their progress without an overwhelming amount of information.
Also keep in mind that platforms need to make money. Therefore, you may be charged fees to use your platform or you may have to pay fees based on how much you earn or transaction-based fees. Depending on your country and the type of investment, you may also have to pay taxes on your income.
If you have investigated platforms, invested in certain funds, and obtained financial returns by relying on robo-advisors, you may want to go further.
You can upgrade to a more complex platform that allows you to fine-tune the stocks and funds you use – with this method you can create your own portfolio. You might generate more cash using this method, especially if you have more experience with investments, but it might also come with higher risk. It may also take longer.
You can also choose to invest in a more unusual type of asset. Many people invest money in real estate, such as landlords who buy houses to rent out, and some people even invest in art or cars.
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