Investment for beginners: what is investing and how to easily get started

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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.

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. 

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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. 

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.

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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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 minimize company-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? 

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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N26 offers a simplified and stress-free way of managing your money. Gain a deep understanding of your spending habits with Insights and get a monthly snapshot of your financial health with your Monthly Wrap-Up, helping you to stay on budget. Plus, you can easily start setting aside money with Spaces to help you reach your short and long-term financial goals. Find the right account for you.