Money makes the world go round and therefore there’s a set of key financial information we should all be learning from a young age.
Every person, especially children, should start an investment portfolio as soon they earn their first dollar. Saving money by itself is not useful. Investing is critical for financial freedom. Yet most of us weren’t given this advice and therefore are only now starting to wonder, “have I left it too late to invest?” And if no… “how do I get started?”
If this sounds likes something you’ve been asking yourself, here’s our step-by-step guide to financial information and getting started with investing (and ensuring you’re doing it the right way!)
1. Determine your investing approach
Investing can seem daunting if you don’t have any background knowledge, but plenty of resources are available to help educate yourself about the basics. There are many different types of investment vehicles, from stocks and bonds to commodities trading and ETFs, and each has its own set of risks and rewards. It’s important to do your homework and understand the pros and cons of each before deciding where to put your money.
Once you have a general understanding of the different types of investments, you can start researching specific companies or industries that interest you. Keep in mind that investments can go up or down in value, so it’s important to have a long-term perspective and not get too caught up in short-term fluctuations.
With a little effort and patience, anyone can start investing and grow their wealth over time.
2. Decide how much you will invest in stocks
First, let’s talk about the money you shouldn’t invest in stocks. The stock market is no place for money that you might need within the next five years, at a minimum.
While the stock market will almost certainly rise over the long run, there’s simply too much uncertainty in stock prices in the short term — in fact, a drop of 20% in any given year isn’t unusual. In 2020, during the COVID-19 pandemic, the market plunged by more than 40% and rebounded to an all-time high within a few months.
- Your emergency fund
- Money you’ll need to make your child’s next tuition payment
- Next year’s vacation fund
- Money you’re socking away for a down payment, even if you will not be prepared to buy a home for several years
New to investing and not sure where to start? Check out our beginner investing guide.
How much is too much?
Now let’s talk about what to do with your investable money — that is, the money you won’t likely need within the next five years. This is a concept known as asset allocation, and a few factors come into play here. Your age is a major consideration, and so are your particular risk tolerance and investment objectives.
Let’s start with your age. The general idea is that as you get older, stocks gradually become a less desirable place to keep your money. If you’re young, you have decades ahead of you to ride out any ups and downs in the market, but this isn’t the case if you’re retired and reliant on your investment income.
Here’s a quick rule of thumb that can help you establish a ballpark asset allocation. Take your age and subtract it from 110. This is the approximate percentage of your investable money that should be in stocks. You can then adjust this ratio up or down depending on your particular risk tolerance.
3. Start Small And Diversify Your Portfolio
Many people believe that investing is only for people with a lot of money or those with financial knowledge. However, this isn’t true! Anyone can start investing, regardless of their financial situation or lack of knowledge. The key is to start small and gradually increase your investment as you learn more.
You can also diversify your portfolio by investing in different types of assets, such as stocks, bonds, and real estate. This will help to mitigate risk and maximise returns. So don’t be discouraged if you don’t know where to start – anyone can become an investor! Take it one step at a time, and before you know it, you’ll be on your way to achieving your financial goals.
4. Stay Calm And Don’t Panic During Market Downturns
A few basic principles can help get you started on the right track:
Firstly, it’s essential to stay calm during market downturns. Remember that these are a natural and normal part of the investment cycle.
Secondly, be patient and let your investments grow over time. Investing is a long-term game; it can take years to see significant returns. Lastly, don’t be afraid to seek professional help if you need it. There are many reputable financial advisors out there who can assist you in making wise investment decisions. By following these simple tips, you can start down the path to a healthy and prosperous investment future.
Conclusion on this Need to Know Financial Information?
Investment is a critical aspect if you want to have wealth in the future.
Unfortunately, many people don’t start investing because they feel they need to know everything about it, preventing them from taking that first step. However, you can pay someone else to research or take a class to gain more understanding. The most important thing is getting started so your money can begin working for you!
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Articles written by our internal Daily Guru writers, who are certified & qualified growth & development professionals.