Investing: What Beginners Need To Know

When it comes to our personal finances, many of us are taught that saving is the most direct path to building wealth and achieving financial freedom starting from a young age. While saving is undeniably crucial in pursuing both goals, making smart investments with your money can make them much more achievable.

The word ‘investing’ strikes fear in some people’s hearts, as we all have at least a small fear of financial loss instead of monetary gain, primarily since we work hard to reign in our desire to spend and instead save. Hence, the idea of losing our hard-earned money makes us uncomfortable. If you make smart decisions and invest in the right places, you can reduce the risk factor and increase the reward factor.

Keep reading for some novice investment tips and how you can utilise them to generate meaningful returns.

Open an investment account

In the finance world, the market is a term used to describe where you can buy and sell shares of stocks, bonds, and other assets. When entering the market, we recommend that you don’t use your personal bank account and instead open an investment account, or you could use an investing banking application such as Chase or eToro. Once you’ve opened an investment account, you can then use it to buy stocks, bonds, and other investable assets.

Shares and cryptocurrency

As a novice to the investment world, there are many different investments you can put your money into, such as shares (small pieces of ownership in a company), bonds (debt), or cryptocurrency. Generally, stocks are considered the riskiest out of the three due to the price volatility, so we recommend starting with bonds. Another tip, especially if you’re interested in the latter, would be to use cryptocurrency forecast tools, such as this one from OSOM. Their tool shows the market in real-time, therefore assisting you in making the most intelligent decision.

How much should a beginner invest?

When it comes to investing for the first time, we recommend doing so based on your financial goals and situation. Nowadays, you only need a few pounds to invest, so it might be wise to start with small amounts first and increase the amount of money you invest as time goes on and rewards come in. We also recommend that you have an emergency fund of at least three months’ earnings in a savings account before you invest, and you should be prepared to leave your money tied up into your investment for at least five years to give it enough time to grow.

Lump sum vs. regular savings

The benefits of investing a lump sum are that your money will start working for you immediately. Any returns will be compounded from the start; however, the whole sum will be vulnerable on the downside if the market drops. To avoid this, you can drip-feed a fixed amount over time; it will buy fewer shares when prices are high and more when they are low; however, you can miss out on the full benefit of rises in the markets, and you will have a much smaller sum of money invested, to begin. You can also periodically rebalance your portfolio over time which will also have a steadying effect on your asset allocation.