Investment for beginners: what is investing and how to easily get started
From purchasing real estate to buying stocks, investing is the key to a secure and stable financial future. In this guide, learn what investing is and what you need to know to get started.
6 min read
The following statements do not constitute investment advice or any other advice on financial services, financial instruments, financial products or digital assets. They are intended to provide general information. The following statements do not constitute an offer to conclude a contract for the purchase or sale of financial instruments and financial products or an invitation to submit such an offer and to buy or sell any particular digital asset.Stocks and ETFs are subject to high fluctuations in value. A decline in value or a complete loss are possible at any time. The loss of access to data and passwords can also lead to a complete loss.
Grow your money over time: Investing can help you progress toward your financial goals, like saving for retirement or a down payment on a house.
Be aware of the risks: Before you start investing, it's important to understand the risks. The value of your investments can go up and down, and there's always a chance that you could lose money.
Diversify your investments: One way to reduce the risk of investing is to diversify your portfolio. This means putting your money into a variety of assets, such as stocks, bonds, and real estate.
Investing can seem like a steep hill to climb, especially when you're a beginner. It can be daunting to determine what investments to make and where to find the resources to help you build a financially secure future. But we're here to change that! (Quick tip: start with budgeting). In this article, we explain what investing is, what types of investing are out there, and give you a structured idea of how to get started easily — and responsibly. Whether you're looking to secure your retirement or grow your savings, here's how the world of investment works.
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At its core, investing is about making your money work for you — it’s a way to grow your wealth over time by putting your funds into assets that can increase in value in the future. This could mean starting a business, buying real estate for rental income or potential resale, or buying stocks or bonds, for example. More broadly, investing is anything that you do to increase possible future revenue, like continuing education to build your skills and, consequently, your income prospects. Unlike saving, though, investing has risks, and could lead to financial losses if projects fail. Investing also differs from trading, since it's not generally a short-term venture.
How does investing work?
Investing aims to generate income and grow value over time. The range of investment options is vast — we’ll explain more about the different types of investments below. Each category comes with various risks and return rates.Returns vary by asset type, with stocks often yielding dividends and bonds paying regular interest rates, for example. In most countries, you’re subject to tax on any capital gains — that is, the income you earn from interest or dividends.
Investments for beginners: what you need to know
The world of investments is both exciting and scary at the same time. After all, no one wants to lose money — especially "future you" money, like a retirement fund or investment property. Growing your wealth and securing your financial future is significant and overwhelming in equal measures. If you're just starting out on your investment journey, here's what you need to know before you fully jump in. First, let's understand what the risks are.
What are the risks of investing?
Investing can be low or high risk, depending on the assets you invest in. However, the risk is always there: Don't be fooled by claims of risk-free investments. Here are a few factors that might negatively affect your investments:
Market risk: Market conditions, economic factors, or geopolitical events can affect the value of stocks, bonds, and other assets.
Liquidity risk: Some investments may be difficult to sell quickly without reducing the price — for example, real estate. This lack of liquidity is risky if you need urgent access to your funds.
Inflation risk: There's always the risk that the inflation rate will grow faster than your investments. If that happens, your purchasing power could diminish over time.
Specific investment risks: Certain investments might have unique risks associated with them. For instance, investing in individual stocks can be riskier than investing in diversified funds.
Although these are only a few examples, understanding and managing investment risks is crucial when building an investment portfolio. Research, thinking long-term, and diversification are common strategies to mitigate these risks.
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The importance of diversifying your investment portfolio
Ultimately, diversification doesn't eliminate risk entirely, but it's a fundamental strategy to manage and reduce risk while potentially improving how much your money will grow in the long-term. Diversifying your investment portfolio is crucial for several reasons:
Risk mitigation: Spreading your investments across different assets (stocks, bonds, real estate, etc.) and within those classes (different industries, geographic regions, etc.) can help reduce the impact of a poorly performing asset. In short: A diverse portfolio ensures that when one area underperforms, others may still generate positive returns, balancing out overall portfolio risk.
Enhanced stability: Diversification stabilizes your portfolio's performance over time. Assets tend to perform differently under various market conditions, so having a mix of investments smooths out fluctuations and reduces volatility.
Optimized returns: By spreading investments, you can potentially capture gains from different sources, maximizing the potential for positive returns. While diversification never guarantees profits, it optimizes returns at whatever level of risk you're comfortable with.
Protection against specific risks: You can minimizecompany-specific or sector-specific risks, for example, through diversification. If you've heavily invested in one industry or company and it runs into problems, your entire portfolio (and financial security) could suffer. Diversification gives you a buffer against this.
As your understanding and experience add up, you'll be able to find a diversification strategy tailored to your own investment goals and risk tolerance. But how do you start investing?
How can you start investing?
Investing is a great tool to secure your financial future — you got that by now, and you understand the risks. You're ready to get started, but how?The question of how to invest often comes down to a single decision: Do-It-Yourself (DIY) or get professional management. DIY investors can start with online brokerages for lower commissions and user-friendly platforms; banks also provide platforms for DIY investing and trading. However, remember that investing well takes knowledge, skill, time, and a clear head. If these things aren’t your strong suits, getting a professional to manage your investments might be a wiser choice.Before leaping into investments, whether DIY or with professional management, make sure you're financially prepared. If your monthly expenses are covered and you’ve already built an emergency fund as a safety net, then you’re in a great position to start investing.Begin with what you're comfortable with and gradually expand your knowledge and portfolio as you become more confident in your investing skills. Here's to a financially secure (and responsible) future!
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FAQs
There are plenty of different investing options to choose from, depending on your financial goals and risk tolerances. Here are some common investment types:
Stocks: a piece of ownership in a company. Its value can change based on the company’s performance.
Bonds: a loan to a government or corporation. Bonds typically include regular interest payments, and you get your investment amount returned to you after a predetermined time frame.
Mutual funds: money pooled from multiple investors and then invested in a variety of securities like stocks, bonds, or both.
Exchange-traded funds (ETFs): similar to mutual funds, but traded on stock exchanges just like individual stocks.
Real estate: physical property, like a rental property, commercial building, or land.
Retirement accounts: accounts with lower or no taxes on them. They’re designed for long-term savings
Make sure to research and understand the pros and cons of each type before making any investment decisions.
Your risk tolerance is how well you handle it when the value of your investments goes up or down (or both). Knowing what your risk tolerance is can help you set an investment strategy and choose investments. Here are a few things to think about to figure out your risk tolerance:
Financial goals: Are you investing short-term or long-term? Do you want high or moderate returns?
Time horizon: How long can you commit your money without needing it?
Financial situation: How much can you afford to lose without jeopardizing your financial stability?
Personality: Are you comfortable with risk or do you prefer to play it safe?
Diversification means spreading your investments across different asset classes to reduce risk.By not putting all your eggs in one basket, you can potentially protect your portfolio from significant losses.For example, if you invest only in stocks and then the stock market declines, your entire portfolio suffers. But if you diversify with stocks, bonds, and real estate, the impact of a downturn in one asset class might be offset by gains in another.
You can start investing with a small amount of money by using investment apps that allow low or no minimum deposits. Consider investing in low-cost index funds or ETFs — they have the added perk of giving you built-in diversification. And automated investment services or robo-advisors can help manage your investments for pretty low fees.
Here are some common mistakes to avoid when you start to invest:
Not doing enough research before making investment decisions.
Trying to time the market rather than focusing on long-term growth.
Investing based on emotions or following the latest trends without understanding them.
Not diversifying your portfolio, which increases risk.
Ignoring the fees and costs associated with investments, which can erode returns over time.
When you have investment income, your earnings are likely to be taxed. Here, you’ll learn about the different types of investment income, how they’re taxed, and more.
If you haven’t started setting aside money for retirement, you’re not alone. Here, get a solid understanding of the different investment options so you can set yourself up for your golden years.
When you have investment income, your earnings are likely to be taxed. Here, you’ll learn about the different types of investment income, how they’re taxed, and more.
If you haven’t started setting aside money for retirement, you’re not alone. Here, get a solid understanding of the different investment options so you can set yourself up for your golden years.
