It can be scary to think about investing, it seems risky and people will say that you could lose money. However, provided you do your own research and educate yourself you could be very successful investing.
First of all, what is investing? The dictionary definition is, “the act of putting money, effort, time, etc. into something to make a profit or get an advantage, or the money, effort, time, etc. used to do this.”
So simply, investing is where you use your own hard earned money to buy assets in the expectation that those assets will either increase in value or generate an income. Examples of investments include, stocks, property, bonds, cryptocurrency, commodities etc…
1. Select an Investment Style
Before you even start to put your money into anything, you need to figure out how you are going to go about investing. You need to have a game plan, never invest off the cuff.
For example, when I invest in stocks I do so with the mindset of earning dividends for long term income growth. Therefore, I will only put money into companies that will further this mindset. When I buy into a company I do so with the view that I may hold onto this stock for 5 or more years.
It doesn’t matter what method you chose to invest, it matters that you learn how to invest and you stick to the plan that you set out with. Now that doesn’t mean you can’t change your mind at some point and change your plan, just do it in a structured and organised way.
2. Open a Brokerage Account
Whether you decide you want to day trade, swing trade, be a growth or dividend investor; you will need a brokerage. If you are just starting out and want an easy to use platform I would go for either Trading 212 or Freetrade (If you click on the link and deposit £1 you will get a free share to get you started).
There are loads of different brokerages out there, choosing one can be a long task and I do recommend trying out a few. I personally use Trading 212 but have also used Freetrade and eToro.
Take advantage of any free share promotions when you are opening up a new brokerage account, it is literally free money. You usually have to hold on to the shares for around a week but after that you can either keep the share or sell to invest in what ever you like.
3. Decide what to Invest in
There are so many different things you can invest in. When investing in the stock market, for example, you can buy individual companies, bonds, exchange traded funds (ETFs) and Index funds.
Sticking with the stock market example, again this comes back to the first step – what is your investment style. If you are a day or swing trader then you are probably going to want to look at individual companies; same again for dividend and growth investors. However, investing in specific companies requires you to commit to staying up to date on financial news regarding that company and taking action accordingly.
Alternatively, if you want a more hands off approach then ETFs and index funds are probably more for you. An ETF is a fund that spreads out its money over a large basket of companies therefore spreading out risk. They are usually tailored to specific industries and risk tolerances so you should find one that suits your requirements. Index funds operate similar to ETFs by spreading out money to a wide range of companies, the difference is they attempt to mimic the performance of a particular index. So a FTSE100 index fund would hold positions in FTSE100 companies to get a performance that shadows the index itself.
4. Develop and Review your Plan Regularly
Over time things may change, your personal circumstances and the things you invest in will evolve in the long term. Therefore, it makes sense to occasionally review the plan and make adjustments that suit you. This also acts as a form of risk management.
Large life events will cause you to change how you want to invest. When you are younger and have fewer commitments you may be happy to have a riskier approach to investing, however, as you approach retirement you may want to review and reallocate recourse to something more safe.
Additionally, if you have children you make wish to invest on their behalf either for university, their first house or a wedding. You will need to factor in this additional investing with any existing interests.
5. Start Investing
Once you are satisfied that you have done all of the above, now it is time to put money into the investments you have chosen. At this point, you will be regularly reading company financial statements or fund investor updates. It is extremely important that you keep up with this.
Many people still regard investing as a form of gambling. I thoroughly disagree with this, gambling implies you are throwing money at a chance that you might make more – luck. When investing you are taking financial decisions based on hours of research that you have undertaken to realise a gain. Sure there will always be an element of luck, but this is the same with all things in life. But when you do your research and invest accordingly, the odds are very much more in your favour.
Get a free share HERE when you sign up and deposit just £1
None of the content in this article should be considered financial advice, I am not a financial advisor and you should always do your own research prior to investing. These are my opinions only.