The road to financial security and freedom starts with growing your money. Investing is one practical way to do so. However, this isn’t a walk in the park, as there are many things to consider.
For the uninitiated, investing entails purchasing assets whose value increases over time and gives you a high return on investment (ROI). Simply put, it’s the process of buying an asset at a low price and selling it at a higher price.
If you’re looking to invest as a beginner, here’s how to start:
1. Learn different investment types
Now that you know what investing is in a nutshell, you must learn the different types of investment. Below are some common types you can invest in:
- Stocks: These are securities representing a share of ownership in a given company. When you buy a stock, you become partly an owner and get a share. As a shareholder, you’re entitled to a dividend—a percentage of the company’s profit. The rule of thumb here is to buy a stock at a low price and sell it when its price is high.
- Bonds: These are an investment type with a fixed income. As an investor, you loan the money to a borrower such as a company or government entity. While the borrower uses this money to fund its operation, you earn interest on this investment. Bonds are deemed one of the safest investment securities.
- Mutual funds: These consist of a pool of money obtained from various investors used to invest in securities such as those mentioned above. This means that you can put your money in this financial vehicle to participate in investment and earn a profit in time.
- REIT: This stands for real estate investment trust, where companies or individuals own and manage a portfolio of real estate properties and mortgages. Simply put, it’s considered a real estate stock that works the same as a regular stock.
- Forex: This is short for foreign exchange, a type of investment where investors trade international currencies. As an investor, you look at different types of currency pairs and choose to exchange one currency for another based on speculations. Learn how to predict currency prices to make the right trading decision and potentially earn a profit.
2. Start with an investment goal in mind
Now that you know the different types, you can now start with your investment. Of course, investing depends on your current financial status and your financial goals. Ask yourself how much money you’re currently generating, how much you’re willing to invest, and what the investment is for. For the most part, you want to grow your money to fulfill the following:
- Get married
- Buy your dream house
- Send your kids to school
- Prepare for retirement
- Or simply grow your money
3. Choose a broker
Once you’re clear on your investment goal and know what investment type to venture into, you can now choose a broker. A broker acts as the one who performs your trades and stores your money in an account.
That said, it’s best to get a broker if you’re looking to buy and sell stocks, bonds, or mutual funds. But when hiring one, consider the following:
- The money you plan to invest
- The frequency of investment
- Your level of trading experience and the guidance you need
- Other services you need for investment
4. Build a diversified portfolio
After getting an investment broker, you can ask for their help to build your investment portfolio. Sure, you may start investing in one type, primarily stocks. But as you grow your money over time, consider putting it in other forms of securities. Keep in mind that the ultimate goal of building a portfolio is diversity. To have a diversified portfolio, consider having the following:
- Local stocks
- Foreign stocks
- Real estate
- Commodities (goods such as precious metals, energy, petroleum, etc.)
Ultimately, having a diversified portfolio spreads your financial risk evenly. That way, no single mistake in your investment ruins your finances.
5. Learn and employ your investment strategies
Investing entails some strategies to be able to succeed and grow your money. This means that you don’t just put your money in whatever forms of security. You must seek the knowledge, trading skills, and high expertise of your broker to know what investment type is good for you.
In fact, your broker must study the companies you’re planning to invest in and the market status. Before taking the plunge, it takes conducting research and performing due diligence for you to make the right decision. You must also learn some investment strategies yourself and employ those that work for you.
6. Protect your investment
Anything that has to do with money requires some protection. The last thing you want to happen is to invest in security and end up becoming a victim of fraud. The good thing is that there are ways to protect your investment portfolio. Take the following steps:
- Be sure to record and monitor your finances and expenditures.
- Allot a portion of your money for investment, while setting aside others for emergency funds and savings.
- Invest carefully by considering non-volatile and liquid vehicles.
- When investing, don’t put out all your money and take it one step at a time.
- Turn those investment profits into savings, and later on invest more.
- Consult lawyers to ensure the legality of your investments.
While investing can be complicated for beginners, it doesn’t have to stop you from taking the plunge. All it takes is to learn its different types, start with a goal, choose a broker, build a portfolio, employ strategies, and protect your investment. With all these key steps, you’ll set your investment plan and decision in the right direction. In time, you’ll establish your financial security and gain financial freedom.