Investing For Beginners: easy steps and tips to start investing
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Let’s talk about money. There comes a time when we finally succeed in saving some money if our lifestyle is responsible and we think about our future. More and more people next to the main source of income are also looking for additional sources of income that would improve the financial situation, create stability, or provide a better tomorrow. Some people look for extra work, start a creative activity or decide to invest. In this way, the money you spend earns even more money. However, the investing for beginners looks not so easy, so in this blog, I want to share some easy steps and tips to start investing:
I always was taught to save money, and never live from salary to salary. My parents are very responsible and taught me and my brother how to act with our money. From the first day when I started working, I saved 30% of my salary for the purpose to invest them in any serious business. I still have saved not so much, but I already searched for the proper ways to invest money. I work in the real estate field, I know this business well enough, and I seriously think that it is the best field for me to invest money. But I also learned about diversification of investments, so I need some other ways to invest my money.
Many people have heard and even know that a successful investment is a great way to increase the money and thereby secure a better quality of life. This is a fact proved to be true since all wealthy people effective use successful ways and means of investment.
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A large number of people who have never tried to invest argue that they cannot even start investing because they do not have enough money to live a normal livelihood. Others claim that such activities are not for them because it is too complicated and dangerous. They base their opinion on examples of people who have experienced financial failures.
In my opinion, the real reason is insufficient financial education and even poor financial literacy. However, as with any activity, investing requires readiness and certain knowledge.
Investing for Beginners - Financial success in investing
So, what I have learned while searched info about how to make money investing? I think I can share it with you: easy steps of investing for beginners:
The first step: Manage your finances
It is always necessary to remember that only the proper preparation can help achieve the goal set for any activity. Because successful investment is the highest level of financial activity, it is especially important for it to be properly prepared, with specific and correct knowledge.
To start investing without checking your financial condition is the same as jumping in the deepest pool without being able to swim. The cost of living growth, credits and credit cards can eat everything you plan on investing. Therefore, it is important to begin by understanding why and for what you spend money. Only this perception plus small changes in your consumption habits can easily reduce your spending by 10 or even 20 percent. And this means that there will be money for investing. Fortunately, starting an investment does not require an extra large starting amount.
Manage your finances in order to have financial success in investing
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In addition, it is good to have your own reserve fund, and not only for investing purpose. You never know what can happen in life. For this purpose, some people based on their personal experience advice you save an amount of 3 to 6 monthly expenses if you suddenly become ill or lose your job.
The second step: Find out the basic principles
You do not have to be a great financial expert if you want to start investing. But you need to know and understand the basic terminology so that you can make decisions based on the well-understood information. Learn how to differentiate stocks from bonds, the foundation from certificates. It will be also good for to get familiar with some of the basics of some theories, such as investment portfolio optimization, diversification of investments, and market efficiency.
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Financially illiterate people are not able to optimally manage their limited personal finances and to create cash reserves from it. Even if they occasionally get these, they are rushing to lose them by buying something for consumption. Secondly, they are not in a position to choose the right areas for investment, measures, and the ways of managing.
It is naive to expect that money given to strangers will, without your caring, bring you significant earnings. This is an obvious sign of insufficient financial education. At first glance, it may sound too complicated, but when you start learning with every new knowledge you will start to understand better and better. Believe me, I went through this step myself.
The third step: Purpose
After you decide on your investment budget and accumulate background knowledge, it's time to set your investment goals. While all investors want to make money, their goals and needs vary. Goals depend on your age, attitudes, your current situation, and even your education. The 35-year-old entrepreneur and 75-year-old widow's needs and perceptions of how much money is needed and what they can do with them are likely to be completely different.
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The fourth step: Set your risk tolerance limits
How much will psychologically affect you the sharp fall in the value of your investment? Before deciding which particular investment is appropriate for you, you need to understand what level of risk you can tolerate.
What do you like more about - riding a racing car or reading a book in a hammock? The level of risk tolerance often depends on age, income, and financial goals. One thing is to get on the stock exchange and buy a new TV, and quite other is to accumulate a sufficient amount for retirement.
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The fifth step: Discover your investment style
Depending on how tolerable you are, determine whether you are conservative or aggressive. The most conservative investors 70-75% of their savings keep in low-risk assets, such as state bonds or saving sheets, and the rest in large and safe companies. Meanwhile, the most aggressive ones for 80-100% of their capital is buying shares.
The sixth step.: Learn investment prices
The higher the fee for the acquisition of an asset, the less you get earnings on the investment. Typically, passive long-term investment means the lowest cost, and the most frequent trading and speculation - the biggest. Brokers take a reward on the stock market for the operations they have performed. It is also worth paying attention not only to the number of commissions but also to the fact that you may need to pay an intermediary a monthly fee. If you invest in funds, keep in mind that you may have to pay not only acquisition, sales or management fees, but also to pay off some of your profits for successful investment.
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Seventh step: Choose a broker or an advisor
This is one of your most important decisions. The broker's selection key criteria should be a reputation, good performance in the long run, and whether the broker can explain the proposed investment strategy in a simple, understandable language.
Eighth step: Selection of investment objects
First, split your capital into three parts: for shares, bonds, and cash balances. After that, split the first two parts into a few smaller parts that you split between different stocks. The cash will be useful to you when you need to pay brokerage services or finance future purchases. The size of the parts must depend on the investment style you choose.
The specific issue of stock selection is much wider than fit into this article, and we may talk about it in my future blogs.
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Ninth step: Be calm
Do not let fear or greed to limit your income or increase your loss. Keep in mind that your investment portfolio will experience many short-term fluctuations, sometimes strong. As a long-term investor, you should not panic too much or enjoy these fluctuations. If your investment does not allow you to sleep at night, it's probably worth changing them to suit your temperament.
And finally, the last tenth step: Regularly review your investments
When you start investing money, you buy stocks or bonds based on a particular plan you choose, thus distributing the risks and expected returns. But over time, one asset type may go up sharply and increase its share in the overall portfolio, while the other ones may have fallen in price and dropped down. And it's no longer fit with your plan. In this case, it is necessary to rebalance the portfolio - to sell some of the increased assets and to buy the cheap ones in order to bring the balance back to its original state.
How to invest: how to make money investing
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Some tips on safe investing
Invest money in areas you know well
The first tip is to invest money in areas that you know well. I do not really say that before you invest, you need to become a specialist in one area, but a general perception of how a certain market works, what are the characteristics of potential customer behavior, seasonality of sales, etc., will surely be beneficial. If you invest in an area you do not understand anything, you are at risk because you will hardly check that you are given the correct information, you will not notice certain alerts that may eventually cost you money.
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Buy cheap - sell expensive
The most common issue for prospective investors is how to choose the right ways to invest money. There is much useful literature on this subject, which details all the rules for investing. However, one should keep in mind the principles of common sense and realize that there are no miracles - if literature promises a fast and easily accessible result, it is best to look for other sources of information.
You can formulate the main rule of successful investing: buy cheap - sell expensive. However, this truth is very abstract, so you need to be able to evaluate when it is cheap and when it's expensive. The valuation principles can be divided into two groups: to assess the comparisons of shares of similar companies or to assess, in substance, how much the shares of a particular company should cost.
Still, not everyone is competent enough and able to independently evaluate each campaign for themselves. In this case, you can always use reviews from professional analysts.
To get rich, you have to be making money while you're asleep. - David Bailey
Diversification of investments
Many experienced investors reveal that diversification of investments would be worthwhile in order to achieve financial success in investing. Diversification of investments is the taking of different activities (in this case, investing in different companies or businesses), in order to reduce the risk of loss of money. It is advisable to invest money into not even two or three, but seven or ten different companies. Think about the case if you invest all your saved money in only one company, you will lose everything if the company fails. If you have invested in the ten, then when one collapses, there are still nine companies that can carry you higher or lower profits.
Diversification of investments
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On the final note
Money, money, money ... This is probably the word used most often in the modern world after the word "I". On the other hand, from my experience, it's not important how much you earn, but more importantly, how much you save. And to achieve this, you need to plan your finances, optimize your expenses, and make work your saved money - invest them. The novice investor usually goes through a few stages till becoming a successful investor.
It is important to estimate that investing money is risky. Of course, you have the opportunity to significantly increase your income, but you also have the opportunity to lose money.
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Therefore, if you do not have much experience, try not to hurry up, take a closer look at the company or person you choose and do not avoid to advise with experienced investors, professionals in your field. If you do not know such people, better search for consultants of this kind. Certainly, consultations will not be free, but the knowledge you will get can be very useful for making your first investment, and also provide a foundation for the great benefit in the future if you decide to continue doing so.
Experience, knowledge, emotional stability is essential for a profitable investment. Investing money requires a lot of effort, patience, and knowledge. Therefore, you need to be very careful about getting ready to invest your money.
Conclusion: there will always be a risk involved in any kind of investing. Sometimes it happens that even the most stable business can ger falling down, and the company that you were calm about can bring only financial losses. However, the more you are getting knowledge, the more deeply and in details you are interested in - the chance to invest successfully and profitable will only increase.
Financial freedom is available to those who learn about it and work for it. - Robert Kiyosaki
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