Investment for beginners: how to start investing

As a new investor, investing can be intimidating, but it is an important part of saving for various financial goals and building wealth. Your investing life will be filled with a variety of market environments, so don’t get too focused on whether now is the best time to start.

New investors need to know their level of risk tolerance before making any investment. You don’t want to be surprised after investing because certain investments carry more risk than others. Make sure you can live without the money you’ll be investing for a few years or longer and whether you’re comfortable not accessing it.

Why should you start investing?

Starting to invest can offer several potential benefits, including:

• Wealth building: Investing provides the opportunity to grow your wealth over time through the potential appreciation of your invested assets, such as stocks, bonds, and real estate.
• Beat inflation: By investing, you can potentially outpace inflation, thereby preserving and growing your purchasing power over the long term.
• Financial goals: Investing can help you achieve specific financial goals, such as saving for retirement, funding a child’s education, or buying a home.
• Passive income: Some investment vehicles, such as dividends from stocks or rental income from real estate, can generate passive income, providing an additional source of funds.
• Diversification: Investing allows you to diversify your assets, spreading risk across different investments, sectors, and asset classes to potentially mitigate market volatility.
• Retirement planning: Investing for retirement is essential to build a nest egg that can sustain you during your non-working years.
• Tax benefits: Certain investment accounts and vehicles offer tax advantages, such as tax-deferred growth or tax-free withdrawals under specific conditions.
• Financial security: Building a diversified investment portfolio can contribute to your overall financial stability and security, potentially providing a safety net in times of economic uncertainty.
• Economic advancement: Investment in businesses and ventures can contribute to economic growth and innovation, benefiting society as a whole.

Remember that investing involves risk, and it’s crucial to conduct thorough research, seek professional advice if needed, and make well-informed decisions aligned with your financial situation and goals.

How to start investing?

On a high level, investing is the process of deciding where you want to go on your financial journey and matching those goals with the right investments. Over time, you need to understand your relationship with risk and manage it accordingly.

Having a clear understanding of what you want is the key to moving forward. Financial planners can provide professional guidance or you can invest on your own. To help you get started with investing, we have discussed each step in detail below.

Determine your investment goals

When determining your investment goals, consider the following:

• Time horizon: Determine the timeframe for achieving your goals. Short-term goals, such as saving for a vacation, may require different investment strategies than long-term goals, like retirement planning.
• Risk tolerance: Evaluate your comfort level with investment risk. Are you willing to take on higher risk for the potential of higher returns, or do you prefer a more conservative approach?
• Financial objectives: Identify what you want to achieve with your investments. This might include saving for retirement, funding a child’s education, buying a home, or simply growing your wealth.
• Income needs: Consider whether you need regular income from your investments, or if you’re primarily focused on long-term growth.
• Flexibility: Determine how flexible you need your investments to be. Will you need to access the funds soon, or can they remain invested for an extended period?

Understanding these factors can help you establish clear and achievable investment goals that align with your financial situation and aspirations. This, in turn, can guide your investment strategy and asset allocation decisions.

Collect how much money you want to invest

To determine how much money you want to invest, consider the following factors:

• Financial Situation: Evaluate your current financial situation, including your income, expenses, savings, and any outstanding debts. This will help you ascertain how much you can comfortably allocate to investments without affecting your essential expenses and financial stability.
• Investment Goals: Consider the specific goals you have for your investments, such as saving for retirement, buying a home, or general wealth building. Your investment amount may vary based on the timeline and magnitude of these goals.
• Risk Tolerance: Assess your comfort level with investment risk. If you have a higher risk tolerance, you might be willing to invest a larger amount, whereas a lower risk tolerance might lead to a more conservative investment approach with a smaller initial investment.
• Budgeting and Savings Plan: Review your budget and savings plan to identify any surplus funds that can be allocated to investments. It’s essential to strike a balance between investing and maintaining an emergency fund and meeting day-to-day expenses.
• Financial Advisor Guidance: If you’re unsure about the amount to invest or need personalized advice, consider consulting with a financial advisor who can assess your financial situation and help determine an appropriate investment amount.

Taking these factors into account will not only help you decide on the right amount to invest initially but will also lay the foundation for setting up a comprehensive investment strategy aligned with your financial goals and risk tolerance.

Choose an investment account

When selecting an investment account, consider factors such as your investment goals, risk tolerance, and the investment products offered. Here are several common types of investment accounts to consider:

• Brokerage Accounts: These accounts allow you to buy and sell a variety of investment products, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more. They offer flexibility and a wide range of investment options.
• Retirement Accounts: Choosing to invest in a pension can represent a solid strategy for securing a comfortable future in retirement. Although you may already have a pension plan at work, it is also worth considering a Self-Invested Individual Pension Plan (SIPP), known as a self-directed pension plan. This type of plan offers a wider variety of investment options, including real estate, bonds and funds, thus broadening your choices to maximise your income over the long term.
• Children’s savings accounts: Children’s savings accounts are investments you can make on behalf of your children to set them on the path to financial security, while helping them understand how to save and why it’s important. These types of savings accounts tend to offer more competitive interest rates than adult savings accounts, so they can be a great investment in your child’s future. They also offer tax benefits and can be used to fund qualified education expenses for a designated beneficiary.
• Managed Accounts: These accounts are often offered by wealth management firms and provide personalized portfolio management and financial planning services. They may be suitable for individuals seeking professional investment guidance and a customized approach to wealth management.
• Real Estate Investment Accounts: For those interested in real estate investments, real estate crowdfunding platforms or real estate investment trusts offer opportunities to invest in real estate without the direct ownership of property.

When choosing an investment account, it’s essential to assess your investment objectives, risk tolerance, and preferred level of involvement in managing your investments. Additionally, it’s important to consider any fees, account minimums, and the range of investment options offered by the account provider.

Pick your broker

When choosing a brokerage firm, it is important to take several factors into account to ensure that it is in line with your investment needs and preferences. Here are some reputable brokerage firms to consider:

• Vanguard: Vanguard is well-known for its low-cost index funds, ETFs, and its client-owned structure that tends to result in lower fees. It is popular among long-term, passive investors seeking low-cost investment options.
• Interactive brokers: Aimed at more experienced investors, Interactive Brokers offers a wide range of products from many exchanges around the world. They also offer an advanced trading platform, IB Trader Workstation, a competitor to the Thinkorswim platform.
• Bux: A recent broker offering commission-free shares and ETFs traded in Ireland. Very transparent and regulated by the top AFM. New users will receive a free membership worth up to 200€.
• Degiro: One of the leading online brokers in Europe due to its low-cost structure. It offers commission-free ETF trading (external fees apply) and a broad product portfolio.

When selecting a brokerage firm, consider factors such as available investment products, trading tools, research resources, customer service, fees, and ease of use. It’s also important to review any account minimums and fee structures associated with the brokerage. Additionally, consider seeking guidance from a financial advisor to ensure the brokerage aligns with your investment goals and financial situation.

Sum up about investment for beginners

Investing money is risky, so make sure you consider your risk tolerance and your financial goals before you commit to anything. In some cases, such as high-yield savings accounts, money can be accessed quickly if an emergency arises. A longer-term investment plan should probably include stocks instead.