Beginners guide to investing

Personal financial investment is all about making your money work for you. There are many ways you can do this, and you may read or hear about a variety of strategies that have worked for others but may not necessarily work for you. Making the decision to start investment is a lot simpler than getting it done. So here are a few things to hopefully help you get started.

Getting started

When to start investing

A common question when it comes to investing for beginners is, when is the best time to start investing? However, just like personal finance, there is no one size fits all timing to start investment. The best time to investment will depend on a variety of factors, such as your financial situation, life circumstances, risk appetite, and long-term objectives.

Personal risk level

Another thing to consider before you embark on your investment journey is how risk-averse (unwillingness to take risks) you are. One of the most basic investment principles is that risk and opportunity normally go hand in hand. Investing in something with a larger potential reward will more than likely come with a higher risk. Similarly, assets with a smaller potential return on investment (ROI) provide more security and reduced risk. Because risk and possible return are linked, you should carefully examine your personal risk tolerance when making investment decisions.

Time is your friend

The power of compound interest means that your investment is more likely to grow faster and better the more time you give it. Your principal generates interest, and you earn interest on both the principal and the interest generated. Compound interest is so brilliant in how it works to increase your earnings significantly over time that Albert Einstein called it the “eighth wonder of the world”. On the flip side, it can work against you considerably if you have high interest debts, especially on credit cards and overdrafts. Therefore, it is advisable to pay off consumer debts, especially the expensive ones, before dipping your toes in investing.

Consistency is key

Like most things, you will achieve better results being consistent over a long time. As explained above, time is a big factor in investment, especially for beginners and those who do not have a large sum of money to invest in one go. You can quickly build a sizable investment account by making small but consistent investments. The practice of investing even small amounts of money on a regular basis is a habit worth developing. You can start with £100 and gradually work to increase that amount.

Investment Options for Beginners

When starting your investment journey, it is always best to keep things simple. You can add on more elements as you grow in experience and confidence.

Shares and stocks are often used interchangeably and is primarily buying a portion of a company’s ownership. The cost of a share can range anywhere from a few pounds to many thousand pounds depending on the company. For beginners, investing in shares through mutual funds is highly recommended. Mutual funds eliminate the need to buy individual shares, with the mutual fund provider buying and selling stocks on your half instead. This usually comes with a service charge.

Mutual funds

A mutual fund is a collection of investments that have been packaged together. Investing in mutual funds saves you the time and effort it takes to purchase individual shares and bonds by purchasing a wide portfolio in one transaction. Mutual funds also tend to be less risky because of the different types of investment options that they are made up of.

Property

Real estate investment can a great earner. However, it often requires a bigger amount of investment to get started and could be quite overwhelming if you are just starting out. It will be worthwhile to invest in a property investment class from a well-established company. You can invest in commercial properties or resident properties (rentals or sales).

Start a business

If you have a great idea that could sell, have the time to invest and a bit of capital, you can invest in a business. Investing in a business will not be as passive as most of the other options discussed but can be very fulfilling and can have great return on investment over time. There are excellent government schemes in place to help individuals launch or growth their businesses.

Remember, there are no guarantees that you will bring in income. In fact, sometimes not only does an investment not yield any return, but you could lose your original investment as well.

Hence, be sure to:

Only invest money you can afford to lose.
Seek professional advice from a qualified person when needed.
Thoroughly research on your investment options and source of advice.