Investing for beginners, welcome to this article on basic investing strategies for any newbie. When you are a beginner at investing you probably starting out small and you either have a small income or a full time job feeding you money. Due to this you need to watch your cash flow. The first and most important thing to consider when you are looking to invest is to reduce your over all costs. Then to create a budget to allow you to have disposable income for investing. In the world of investing nothing is ever certain. It is good to understand the risks and not to spend money you can’t afford to lose on investments. Even though investing is viewed as a more long term strategy for wealth growth. You should still employ caution. It is also important to note that investing isn’t a fool proof get rich method and requires patience.
Different types of asset classes in investing
Stocks generally can pay out in different ways. One of which is a dividend. The dividend is paid to share holders at a premium per share owned. As it is good practice for a company to keep it’s shareholders happy by paying dividends it also is not compulsory that dividends will be paid out. In saying this you may need to consider dividend history before purchasing a stock if you your sole goal is to earn dividends. Other ways in which to earn is through the stock improving over time. This also is not guaranteed and you need to be careful about which stocks to choose.
Property investment in the form of homes, buildings and office space can often be quite profitable. Definitely one of the more stable sources of investment, however has an often bigger barrier to entry. Due to the cost to purchase and maintain them. Also this sometimes comes in the form of a loan which adds to your liabilities and risk. If you were unable to pay your bond this could mean you could lose your entire investment to repossession.
Other forms of real estate investment is real estate trusts. Which allow you to hold a share of a property or multiple properties which the trust owns. This has a lower barrier to entry and also does not have the responsibility of maintaining and carrying out repairs on your own property.
Many people prefer this form of investing as it is often something they are passionate about. They know the business owner and the stake holders involved. However private business investment can both have it’s advantages and disadvantages.
- You hold a stake in something you can be passionate about.
- Can be part of your own baby.
- You can influence change in the business depending on your share holding strength.
- More established businesses have a higher barrier for entry.
- Start ups are not solid enough and carry huge amount of risks.
Of course the greatest investment is in yourself. Improving your education. Your knowledge and skills can be one of the greatest investments you can make. One cannot expect to grow ones income if one doesn’t grow their intellect. The two go hand in hand. Read more, take more courses, watch more videos on important topics. Up skill yourself daily. This is the true key to better investment, one of your time and eventually your money.
Where should I invest?
Depending on how adventurous you are and your appetite for risk you can invest in a multitude of different places. It is always advised to seek out the advice of a professional at an established investment firm in order to advise which stocks or other assets to invest in for growth. Other options include going it yourself through trading. There are many different brokers out there which allow retail traders to use their platforms for trading forex, stocks and futures.
In the trading space you will need to learn the market and implement trading strategies. You will need to become accustomed with risk management. This form of investment can span from a few seconds, to minutes to weeks or months. Really depends on your strategy. It also carries the most risk and not can you only lose your capital but can also be in the negative and owe your broker money. Despite these risks you can employ something called leverage. Which allows you to trade 50 – 500 times the money with your money. An example is if you invest $100 you can control $5000 with a 1:50 leverage trading account. In so doing making your profits so much more but also your losses so much more if you lose.
Really the end of the day your strategy for investment really depends on your appetite for risk as all investment carries risk.
How do I build up as a beginner to start investing?
Now that we have covered the different forms of investment. The first and best place to always start is to start saving. In order to invest you need capital. If you put away $500 per month into a bank account or some form of low risk investment yielding 8% in your account. In two years you will have $13,478.40 in 2 years. The more ideal way is to put away a fixed percentage of your income for investment purposes. So that your investment generally scales with your income. Also doing this as a very first thing at the beginning of a new pay check will help you control any adventurous spending which could cause you financial ruin.
Remember compound interest is the eighth wonder of the world and it is good become accustomed with the calculation.
Here it is in it’s most basic form:
Here is an example of how to calculate it using this example of $500 initial capital after 1 year at 1% interest monthly.
future funds = 500(1 + (8/100))^12
future funds = $563.41.
The compound interest calculation has more complex forms where you can feed in monthly payments and other fancy things and is a good tool. To get to know in your investing it will help you make better decisions on your own for what to invest in and what not.
Other investing for beginners
Apart from the obvious financial instruments which one can invest in. There are other investments which can bring forms of passive income as well.
Some like bitcoin and other block chains which requires hash calculations to be done and coin to be mined. For this you require specific hardware which is optimized for calculating hashes. These hashes form part of a block chain which serves as a trust network for certain information.
My personal preferences
I am more of a forex trader. I invest in the fluctuation of currencies in the forex market. Before you run off and get yourself a forex account just remember. All forms cfds and currency trading carry a high level of risk and you can lose more than your invested capital. The beauty of forex is that you can invest smaller amounts from $500 – $1000 and make considerable gains in a short time due to the leverage involved. I employ basic strategies such as harmonics, price action, trend and volume in my trading. Only risking 1-2% of my investment per trade. If it had to be a coin flip it would take 50 to 100 times before I could exhaust all my capital. Giving me favorable time in the market to make some money.
If you are interested in learning more about what I do in my trading I will be adding a few more articles in future on the subject. I’ll share some of my trades, thoughts and other things with you.
Let me know your thoughts in the comment box on this article investing for beginners.