How to start investing Money Investing is purposefully setting aside money that will multiply over time and produce a profit down the road. Eventually, this will allow you to live your dream or retreat when you’re no longer collecting an income. Saving, on the other hand, is keeping aside money for short-term goals, like buying a car or paying for a wedding ceremony.
Things to consider before investing Set a goal? Because of the risks involved, and the potential of loss if you are forced to sell your funds early in order to have money, it is important to have a good plan rather than simply spending a big amount into the stock market because you happen to be able to afford it today. Think about what you will use the money for. Will you rely on it for retirement, to buy a new house or is it for something lower-stakes such as planning for your holidays.
What is your timeframe? Investments can rise and fall, and if you are going to need the money within the next few years, it is possible that it is not time for you to start investing in the stock market – unless of course you are just dipping your toe in the investment world with money you can afford to lose. Investing is a long-term thing, and the longer you can stay invested the more chance you have for returns to grow your assets. One of the reasons investing is so engaging is the chance to reinvest the interest you make through dividends and bond payments, which, coupled with any capital returns, make for a powerful engine of growth. If you think about your goal and your timeframe, you might realize you don’t need to take much risk, and can reach your target in time with less risky assets such as government or investment-grade corporate bonds. If you are going to need more money in less time, you may face having to take more risk to get it.
What to invest in So, there are two types of assets you can invest in – a stock or a fund. A stock is a property in an individual company. This is understood as more high risk as you’ll have money held by just the one company. However, this can see more growth and the payment returns can be higher, due to the nature of the risk being higher. You can also invest in a fund as it is seen as lower risk since it is a mixture of companies within an account. So, the probability of all of the companies going bust at once is extremely low, so the risk is lower. You can also get an accumulation fund, where any dividends are automatically reinvested back into the fund so you don’t receive them, but the price should rise faster, or an income fund where you receive the dividends.
How Much Should I Invest? If you’re debt-free (except for a mortgage), you should invest 15% of your gross income in retirement. It’s adequate to make real progress on your retirement and leaves enough left over for you to reach your other goals, like your kids’ college fund and paying off your mortgage early. There’s a lot to think about when you’re learning how to start investing. But making an investing plan that meets your needs isn’t something you need to tackle on your own. We can help you build a strong investing plan and adjust it over time so you’re always staying on track towards your goals.