What is the secret to being rich? One word is crucial for long-term wealth:
Investing.
We are serious about investments. Check it out:
With a 10% annual return, investing 5 bucks a day for 50 years would put $2.3 million in your bank account. Even better, investing more aggressively would get you there far sooner.
Want to be rich and don’t have a hefty inheritance waiting around the corner? Well then, you need to start investing. As you can tell, doing so can prove exceptionally lucrative in the long run.
Contrary to popular opinion, you don’t have to be rich to start either.
With a beginners investment guide behind them, anybody can do it, regardless of current levels of income or insight. You just have to learn a little bit upfront and commit to the process.
Sound good? Allow us to elucidate the wonderful world of investing.
Keep reading for 5 top tips on getting started.
1. Understand Compounding
The investment world is full of confusing terminology.
Bonds, blue chips, indexes, bull markets, NASDAQ… the list goes on. We’ll go into more detail on some of these later. For now, though, we’re going to focus on what’s arguably the most important:
Compounding.
Very simply, compound interest is your ticket to financial freedom.
The value of any investment you make increases exponentially over time. This is how you turn a daily investment of $5 (at 10% interest) into over $2 million.
Let’s break it down. Imagine investing $1000 in an account that pays 10% interest.
At the end of the year, your money is now worth $1100. The year after, you earn 10% interest on $1100, giving you $1210. A year later, you have $1331. This cycle repeats over and over again, increasing exponentially.
After 20 years (of doing nothing!), you end up with $6,727!
However, imagine investing another $50 each week to your initial $1,000 investment. After the same 20 years, you’d have $173,122.
2. Start Investing ASAP
First thing’s first:
You have to be in it to win it.
The biggest losers of the investment world are those that never do it! It’s as simple as that. Second only to this, in terms of importance, is the need to get started as soon as possible.
Why? Because of the compounding we just talked about. The earlier you start, the longer you invest, which means there’s more time for your investment to compound.
We can’t emphasize this enough. Start early to maximize your potential gains.
However, earlier is better, but it is better late than never!
It doesn’t matter who you are or what you do. You could be fresh out of high school, a college grad, or a business owner running your own limousine service. Anyone could and should start investing.
Coming later to the investment table just means you have to invest more aggressively (aka with more money) to enjoy the same end results.
3. Understand the Actual Investment Options
All that talk of compounding has probably left you chomping at the bit to get started.
First, though, you need to know what to invest it. Here are 3 of the most common (and effective) options:
Bonds
Bonds are loans.
The money you invest goes to a particular entity (e.g. a government or a company) who promises to pay you back within a certain timeframe.
You get interest on top, but bonds are the ‘safe-bet’ of the investment world. As a rule of thumb, less risk equates to less reward. As such, the interest rates on bonds are often exceptionally low.
Stocks
Stocks and shares are the go-to investment option for many people.
Companies who need money to expand or pay down debt will make shares available for sale. People can then buy these and own a small percentage of the enterprise.
If the company grows, then those shares become more valuable; some pay dividends as well. However, if the company loses money (or goes bust), then so do its investors!
Mutual Funds
Think of mutual funds as a basket of multiple investments, which is managed by a third party.
As opposed to buying one or two specific stocks, the fund takes your money and invests it across a wider number of them. You literally spread your bets, which reduces the financial risk involved.
These funds are often a good place to start for newbie investors. Firstly, there’s less risk; secondly, it’s managed by a computer or person that understands the market.
4. Decide Who Is In Charge
Let’s assume that you’ve got some money to invest.
The next step is deciding the best way to go about the process of investing it. You’ve got three options to choose between.
First, you could decide to stay in full control with a hands-on approach. You put yourself in charge of allocating your money and moving it around based on market changes.
The next option is to hire a brokerage company to do it for you. A financial adviser recommends certain investments and/or does everything on your behalf. You benefit from their experience but pay for the privilege.
Robo-advisors are your final option. Here, complex pieces of investment software decide the best investments based on algorithms. These services aren’t free, but they’re far less than human alternatives (and, often, just as effective)!
Having decided your favored approach, the last step is to open your first account and get started.
5. Be Patient
A quick one to finish:
It is hard to overstate the importance of playing the long game with investing.
Remember, compounding interest needs time to work. Moreover, you can expect downturns in the market that take time to recover from. The only way to see a positive end result is to bide your time.
He who waits wins in the world of investing.
Get Working on this Beginners Investment Guide
Investing your hard-earned money is the surest way to find wealth.
Even better, anyone can start investing and making their money work for them!
Hopefully, this brief beginners investment guide has provided the necessary information to get started.
Looking for more posts on investing for beginners? Check out all of our related articles in the investing, crypto, and finance sections of our business blog.
