Most people put off investing because it sounds confusing or risky. So, if you are here, curious and ready to start, that already deserves a pat on the back!
Well, it’s totally normal for investing to feel a little overwhelmed at first, especially if you’ve never done it before. But here’s the truth: you don’t need a finance degree or a lot of money to get started. All you need is a bit of basic knowledge and a plan.
That’s where we come in. So, keep reading, and we’ll break it all down for you, step-by-step.
Strengthen your financial foundation
Before you even begin to invest, make sure you have a solid financial foundation to build on. It is like building a house – you can’t start with the roof. You need a strong structure first, and that structure begins when you understand your money.
Start by tracking your income, expenses, and spending habits. Find out how much you need every month to cover your basic living expenses like rent, bills, groceries, transport, and insurance. This is your financial baseline, or the minimum amount of money you have to cover before you can even think about investing or spending. After you’ve identified this, calculate your spending and how much money you have left at the end of every month.
Next, build your emergency fund. Aim to save at least three to six months’ worth of living expenses. This will act as your safety net if something unexpected happens, like if you ever lose your job or if you are faced with a medical emergency. By having an emergency fund, you can avoid dipping into your savings and being forced to sell your investments at a loss, or going into debt during unexpected financial setbacks.
Set realistic goals and targets
Think about why you are investing and what you hope to achieve, because your investment strategy should reflect your goals and your time horizon. For example, if you plan to get married in the next two years and are hoping to increase your wedding funds, you should be a bit more cautious about where you place your money. Since you cannot afford to lose your capital and your time frame is short, a low-risk, liquid investment may be the ideal choice.
But if you are seeking longer term goals like building your retirement fund, you can afford to take on more risk in exchange for potentially higher returns. A longer investment period also works in your favour, as it allows compound interest to grow your investment over time.
Know your risk tolerance
Okay, so here’s the hard truth: nothing in life is free, especially not in investing. Every investment comes with some level of risk and understanding how much risk you can take is important.
You can use benchmarks like your age, income, and financial goals to help define your risk tolerance. For example, younger investors might feel more comfortable taking bigger risks because they typically have more time to recover from potential losses.
But while these factors are a good starting point to get you thinking about your risk tolerance, ultimately, it is your mindset and relationship with money that matters the most. Even if you are young, if you are the kind of person who panics when the market dips or loses sleep over the thought of losing money, then putting all your savings into a high-risk investment probably isn’t the right move, no matter how promising the returns seem.
In general, higher returns often come with higher risk. While this is not always a bad thing, you need to understand what you are getting into. It is easy to get caught up in the excitement of earning potentially higher returns, but chasing this without knowing your limits can be dangerous.
At the end of the day, be honest with yourself about how much risk you are willing to take then align your investments to fit that.
Research is your best friend
While it is impossible to predict the market or know everything, the best thing you can do is to understand each investment asset before putting your money into it. Every asset behaves differently under varying market conditions, so taking the time to learn how they work will help you find investments that align with your goals and risk tolerance.
And when you do your research, don’t just look at potential returns – pay close attention to fees and taxes, too. Even small costs, like management fees or brokerage commissions, can quietly eat into your returns over time. Taxes on capital gains and dividends can also affect what you actually take home.
The more informed you are, the better your investment decisions will be. A little research can go a long way in helping you build a portfolio that works for you, not against you.
