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Investment for beginners: what is investing and how to easily get started
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.
What is investing?
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How does investing work?
Investments for beginners: what you need to know
What are the risks of investing?
- 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.
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The importance of diversifying your investment portfolio
- 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.
How can you start investing?
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