With many things we want to achieve in life, the hardest part is often starting. Once you’ve actually begun investing, everything starts falling into place. Then you’ll wonder why you didn’t take control of your financial future much earlier.
That’s why we’ve drawn up this simple 5-step guide that any beginning investor can use to start investing. You can use it even if you have no experience in the market or only a small sum of money to invest.
STEP 1: Save money to invest by revisiting your budget
Before you even start thinking about which investments to make, you need to make sure you have some money to invest. The number one rule is that the money you use for investing should be money that you don’t need for life’s essentials. These essentials include paying rent, servicing the mortgage, or groceries.
TIP: A good place to start is to put 100 euros, pounds, or dollars aside from each paycheck specifically for investing.
Once you get more comfortable with the process, you can aim for 10% of your salary or monthly earnings going towards investments. However, if your budget is tight, then some sacrifices will need to be made by reducing spending on some areas to make room for growing your portfolio. In the long run, it’s most certainly worth it.
There is no minimum amount of money you need to invest. You can certainly start investing with $100 per month. However, the more you put in, the more you will get out. If you already have some savings, don’t invest it all at once. Start slow and increase your allocation as you grow your understanding of how investing works.
STEP 2: Getting Started With Investing Through Your Pension
“But I want to do my own investing!” we hear you say. That’s fine, and you will get there. For most people, beginning to invest through a workplace pension is the easiest possible first step, since it makes it so easy to start. For example, you can set up an automatic payroll deduction of a set amount each month and leave your investing on autopilot. Other benefits include tax breaks and matching schemes, where your company will match the contributions you make to your retirement fund. How these work depends on your country’s laws and corporate policies. However, they can make a huge difference.
The disadvantage of company investment schemes is a lack of choice. Oftentimes, employees are restricted to the investment vehicles of one asset management firm. However, there is an increasing amount of autonomy available, so you may be able to pick the kinds of investments you prefer for your retirement account. Another disadvantage is that these schemes are geared specifically towards retirement. You can be penalised if you withdraw funds early for other purposes, such as buying a home or paying for your children’s education.
STEP 3: Open an Investment Account (Beginning to Invest for Real)
For most types of investments, even in real estate which we won’t discuss here, you need some kind of financial intermediary. This normally means opening an online brokerage account or hiring a financial advisor. If you plan to make your own investment decisions, an online brokerage app will offer the lowest fees. A financial advisor will charge additional fees for their professional investment advice.
There are tons of online brokerages to choose from, most of which offer a convenient mobile banking app and desktop trading platform. Though we don’t specifically recommend any in particular, the following are all worth checking out:
STEP 4: Starting Your Investment Journey With Bonds and Index Funds (Passive)
At this stage, you need to assess your own risk tolerance. You also need to consider how much time you are willing to spend learning more about investing and analysing opportunities in the market.
If you think you will prefer a “hands-off” approach, then you will be more of a passive investor. This implies that you will set up the investments you wish to make and hold them for the long run. You will rarely make any changes except by adding to your investment account on a regular basis. The best investments for a passive investing strategy are bonds and stock index funds.
Bonds
Bonds are one of the simplest ways of investing for beginners. Governments and companies issue bonds in return for borrowing money from people like you — you basically become a lender to them. In return for the use of your money, you will get regular payments called coupons. When the bond expires, you get your initial investment back. Governments are usually the safest to borrow from unless your country has a history of defaulting (not paying) its debt.
The lowest risk corporate debt you can buy is rated as “investment grade”. Most companies listed in the Fortune 500 in the US or the equivalent list of well-established companies in your country issue investment-grade debt. This appeals to risk-averse, passive investors.
Smaller or somewhat troubled companies also issue bonds, all the way down to “junk grade”. Returns on these are higher, but so is the risk of a default.
Index funds
A fund is created to bring a variety of different investments under one umbrella. This normally involves a professional fund manager buying several different stocks on members’ behalf. The advantage here is that you can diversify automatically. Diversification is based on the idea that the more different investments you make, the less risk each of those investments poses to your overall portfolio (all the money you have invested).
Individual investors used to do most of their investing via mutual funds, but exchange-traded funds (ETFs) are increasingly popular. This is because the fees are lower, there is more choice in how you can invest your money, and ETFs can be bought and sold anytime, just like an individual stock.
The most popular ETFs track the benchmark index of a stock market — like the Dow Jones Industrial Average in the US. In Switzerland, you could opt to buy the iShares SMI (CH) ETF that invests in the Swiss Market Index. This is a collection of the 30 largest company stocks in Switzerland.
STEP 5: Invest in stocks, forex or cryptocurrencies (active)
If you prefer a more “hands-on” approach to investing, you are presumably ready to put in the time and take greater risks in order to try to make market-beating returns. This approach makes you an active investor.
The idea is that if, for example, the stock market rises by 7% in a year, someone who does extra research and identifies the best opportunities within that market will make a higher return. In fact, they might achieve 10% or 20% per year. Of course, if these investment picks don’t work out, your portfolio will underperform the market. This hands-on route is a common next step once you’ve learned how to start investing and want more control.
Even for the active investor, the bulk of investments are typically passive. An entirely passive investor might have 100% of their portfolio in long term investments. Meanwhile, an active investor would normally put 80-90% of their portfolio into long-term investments. They would allocate 10-20% to higher risk/return opportunities.
The most popular short-term investment opportunities are in stocks, forex, commodity futures and cryptocurrencies. If this hands-on style appeals to you, our guide on how to learn to trade is a good next step.
FAQs About Getting Started With Investing
How Do You Profit From Stocks Once You’ve Begun Investing?
Retail investors with a long-term investing horizon may select some active investments. These can include individual stocks that are expected to increase in value over either the short or longer term.
How long does it take to make money from stocks?
The goal of investing is to grow your money over several years, powered by a generally rising stock market and the power of compound interest. People who wish to see a more rapid return can engage in practices like day trading, but this requires more work and is riskier.
What Are the First Steps in Investing?
Even a few dollars a month can get you started. Wondering how to start investing? Simply register on one of the many online investment platforms, fund an account, and learn as you go.
What is the best age to start investing?
You must be over 18 to open your own investment account. Arguably, too, the best investments are in yourself; getting a university degree, for example. Aside from that, “the sooner the better” is the golden rule.
How much do I need to start investing?
Investing with as little as $100 is already worth it, but ideally, you will contribute to your investments on a regular basis. You can do this by including savings/investment as an item in your budget.
