Investing can be an intimidating topic for many people. But if you’re reading this article, you’ve probably made up your mind to get started, and trying to figure out how. It’s never too early or too late to start investing – a young adult with his/her first paycheck, a parent looking to support a family or a professional eyeing his/her retirement – start now, if you haven’t already. An early start is of course better, giving you a better chance to accumulate know-how and wealth over the long haul.
Plan Your Investing Future
Any type of investing needs to start with a plan, and a proper plan is devised by addressing the right questions.
What are your wealth goals? What is your time frame? Do you have a steady income? How much of your steady income can you contribute to your investment plan? How well can you tolerate taking risks?
For example, ambitious short-term goals may lead an investor to high-risk investments, whereas if you’re looking to build wealth to sustain a certain lifestyle for retirement and can routinely invest over the years you’ll be receiving a paycheck, the recipe would be quite different.
Learn Where You Can Invest
One concept you’ll keep hearing in the realm of wealth building is diversification. And rightfully so! Especially when you’re just starting out, we recommend you spread your investments out over multiple different assets. Diversification will help you get acquainted with different asset classes first-hand and get to know yourself better as an investor.
Buying assets like stocks, ETFs, and bonds can help provide a stable portfolio, limiting your downside risk in times of market volatility. Even within a single asset class – stocks, for instance – some will be more volatile than others. Should you choose, you can direct part of your portfolio to higher volatility assets.
One can assume that a seasoned, older investor would stick to low-risk assets whereas young investors will try anything that’s exciting. Not necessarily so. How you invest is more about how risk-averse you are and also about what you know about different assets. It’s likely that an investor is willing to stick with choices that have worked well for them over the years, but any open-minded investor welcomes opportunities for healthy wealth building.
Consider the Risks of Investing
Investing is an excellent, long-term way to grow your wealth, but it comes with some risk too. You hear a lot of talk about who made how much money, or how much one could have made, but people usually don’t talk much about the risk of losing money, especially for a green investor.
Contrary to popular belief, stocks don’t always just go up. As we’ve seen rather well in the first half of this year (2022), the markets can be volatile. A bear market comes on average every 3.5 years or so. Major corrections of 10% or more happen approximately once every two years.
Looking at market performance over different time intervals yield different perceptions. There will be rises and falls within any given day, week, month or year. But always remember, time in the market beats timing the market. The stock market has an excellent history of long-term capital returns, so time is your friend. Stick with your portfolio if you can, no matter how difficult things get!
Diversification is your other friend in hedging against market volatility. Whether you invest in stocks, ETFs, or bonds, at some point you will experience some losses in your portfolio.
Follow the News
It’s always important to remain up to date with the latest financial developments. Even if you don’t plan on selling your investments during rocky times, you might be able to add to your investments when the markets are down.
There are plenty of resources on the internet including financial websites, blogs, and podcasts that bring you daily stock market news and updates. Most of these are free as well so utilize these resources to your advantage!
Learn How to do Technical Analysis with Graphs and Charts
After a while, if you have the ambition for it, you can look to advance your investing skills. The art of reading charts and graphs and using previous historical performance to predict future moves is called “Technical Analysis”. While it is a skill that is used more by traders than long-term investors, it is definitely something you can add to your arsenal to develop yourself into a more well-rounded investor.
Combining this with “Fundamental Analysis”, which is using company news and financials to calculate a value of a stock, can give you a more comprehensive picture of what you are investing in.
Summary: What You Need to Know to Start Investing Today
Investing for wealth building is a long-term game and the more information and knowledge you can equip yourself with, the better off you will be. It doesn’t matter what age you are now. In ten, twenty, or even thirty years from now, you will look back and realize that starting to invest was the best decision you’ve ever made! Just remember to
1. Reflect on your goals and make a plan
2. Mind and limit your risks
3. Diversify, diversify, diversify
4. Be in the know. Try to learn about different assets and asset classes over time
5. Figure out the type of investor you are and invest accordingly
And keep investing, keep building your wealth!