Reading Time: 4 minutes Investing Basics: How To Get Started Investing
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Investing is one of the key ways to improve your financial position. The sooner you start to invest, the more likely you are to benefit. There are so many excellent ideas that play a role in this, and improving your investment opportunities is vital.
Investing is a way to have your money make more money.
Table of Contents
Set Money Aside
This may be obvious, but to invest you need to set money aside. Look at your spending and determine how much you can invest and at what frequency. Setting money aside is something that is necessary to be able to invest.
Determine Your Goals
It is important for you to understand your goals. Why is it your are investing? Is it just to have more money later? Is it to buy a house in 5 years? Are you investing for your retirement?
Figure out what your goal is. The most specific you can be the easier it is to build a portfolio that aligns with your investment objective.
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Determine Your Risk Tolerance And Time Horizon
You must determine your risk tolerance and your time horizon to invest. If your investments do not align to your appetite for risk or to the time horizon for your goal, then you are setting yourself up for disappointment.
Spend a lot more time on this step than it feels necessary. It is critical because your goal is to increase the likelihood of meeting your investment objectives. That is unlikely to happen if your investments do not match your risk tolerance and time horizon.
Financial Advisors tend to rush through this step or assume the answer for you. Slow them down.
Choose Your Investment
If you are new to investing, it is best to speak with a financial advisor to advise you on your specific situation. We recommend Personal Capital or Betterment.
Both of these have you answer questions about your situation and then help you select a low-cost portfolio based on your risk tolerance and time horizon.
Alternative Investments
There are so many opportunities these days. Learning about things like Forex, how to trade cryptocurrency, and what options trading is can be appealing alternatives to traditional investments.
They can also be complicated and risky, so do your research. Be careful about allocating too much to these risky alternatives.
Real estate is another option, but it is an active investment, meaning you will need to invest more time (beyond research) towards managing it.
Balance The Risk
Balancing risk and reward is important when you are investing. Every investment has many risks. The list of risks is long. The important thing to know is that you need to understand the risk.
This is where a Financial Advisor, either full service or online, can help. They can walk you through the risks specific to your portfolio. Not only does the portfolio’s risk need to be balanced, it also needs to be in line with your personal risk tolerance level.
Monitor Your Investments
Over time the market will cause drift. Be sure to monitor your investments and occasionally rebalance your portfolio. This is another benefit of Personal Capital and Betterment. They can automatically rebalance your portfolio.
In addition to your portfolio drifting, you will also change over time. Be sure to re-evaluate your portfolio whenever there is a life change like marriage, children, increase/decrease in salary, buying a house, etc.
Max Out Your 401k
One of the best investments you can make is maxing out your 401k. The more you invest in your 401k, the less you are paying in taxes. It’s easier to save in taxes than it is to increase your returns on investments. Read Should I Max Out My 401k? Tips From 42 Year Old Retired CFA.
In Conclusion
Investing is not an exact science. But if you follow the steps in this post you should understand the basics enough to be able to ask the right first questions with a financial advisor.
Or if you prefer to invest without a financial advisor you can now know what to consider and research next.