Investing for Dummies: How to Become an Investor from Scratch

One of the central themes of my articles on Financial Expert is that investing is for everyone. This includes people of any age and folks who don’t yet feel confident about how investing works. If you’re searching for ‘Investing for Dummies’ then this might include you.

Sound investing might hold the key to a prosperous future and a richer quality of life. Therefore investing should be of interest to anyone with savings or an income.

However, no one should buy shares or invest in property without first obtaining a solid level of knowledge about the risks and rewards of these investments. This could be sought through;

  • Formal education
  • Investing books, such as this article’s namesake ‘Investing for Dummies‘ by Tony Levene
  • Coaching from experienced friends and family

For this reason, Financial Expert is a great place to start on your learning journey towards investing.

Investing for Dummies: Is investing right for you?

Before I go further, I should highlight some of the common circumstances where investing your money might not be appropriate:

A lack of cash – You should only consider investing if you have an emergency savings pot to cover several months of expenditure following a loss of income.

Debts – If you have any borrowings or loans which are accruing significant interest charges, it is a common rule of thumb that you should clear these first before you invest.

For example, if you have a credit card balance attracting 19.9% interest annually, then you will effectively generate a 19.9% risk-free return by using cash to pay that off and avoid the interest charge. No stock market opportunity can deliver a return as high as this for the same risk.

Short time horizon – You only plan to save for a short period of time, e.g 5 years or less. Examples include accumulating life savings for a house deposit. Read more: Investing time horizon.

A need for liquidity – Circumstances exist which make it likely that you’ll need quick access to the money you have invested.

Lower tolerance of risk – Either through personality, personal experience or mental health reasons, you have a lower tolerance to risk. You would not be comfortable with the very real risk of loss that investing brings with it. Read more: Investing risk appetite questionnaire.

Conservative approach required – You have other reasons to adopt a conservative approach with the money in question. Perhaps you are managing the savings of an incapacitated relative, where you are not the only beneficiary.

As my disclaimer makes clear, this website is a general educational resource and cannot provide tailored financial advice for your circumstances.

Perhaps you don’t want to undertake of hours of reading on this and other websites. Or maybe you’ve already decided that you’d like the piece of mind of knowing that an investment professional is managing your money.

Then perhaps you should consider using a financial adviser.

What do you need to know before investing?

The following topics are the core elements I recommend you master before you make any investment decisions:

  • The risks and rewards of the main asset classes such as stocks and shares, bonds, property.
  • An appreciation for what moves the prices of those asset classes and how investors value them.
  • How inflation and interest rates impact the prices of investments.
  • A history of the rises and falls of the stock market and property markets over the last century.
  • The principles of diversification and why diversification is an essential element of an investment portfolio.
  • A deep understanding of your own personal tolerance to investment risk.
  • An overview of how investment income and capital gains are taxed in your country.
  • An understanding of the different investing platforms and account types available to you, together with the fees and charges of each.

I cover most of these basics in the Foundation investing course, however, I encourage you to research further afield to satisfy your curiosity about these topics.

It will take more than a skim through of a copy of Investing for Dummies to convince yourself that you know everything you need to know.

My advice is to continue to start asking questions and never stop! It’s helpful to go on this journey with a friend or colleague so that you can discuss what you’ve each read or learned, and bounce ideas off each other.

How to quickly learn about a specific investment type

I have created a separate Comprehensive beginners guide to investing which arranges the content on Financial Expert by asset class. This way, you can quickly glance at the definition, ‘how-to’ and more detailed articles about each individual investment type.

Investing for Dummies

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