How To Start Investing

Updated: May, 21, 2017

So you want to start investing, huh? Great Idea!

But.. How the heck do you get started? There’s an insanely amount of information on the internet and everyone’s telling you to do different things. Who do you listen to? Where do you start?

Damnit, maybe I just should forget it – it’s too confusing!

Hold your horses! I used to be an investing newbie too and had the same problems. I started my portfolio back in 2007, and I knew less than nothing about investing.

Now I know a ton about it and my portfolio is growing pretty well – my investment portfolio has increased to six figures which makes me consider myself someone you could listen to and learn from when you want to know something about investing. I’m not a pro, but I certainly do know about money and investing.

Ok, let’s move on.

Why should you invest and start building your wealth?

Below I’m going to outline exactly what you need to know and do in order to get started with your investments and savings. Before you dive in, I really want to let you know why you need to invest.

Inflation lops an average 3.87% off your money’s value every year. That’s $387 from every $10,000! And you can buy a lot with $387. Investments are one of the only ways to grow your money fast enough to outpace it.

NOTE: If you already have a solid idea and want to start, then skip this part.

Investing is a good idea to build your wealth for the future (and for your kids).
It’s a great way to educate yourself in this field.
You will get smarter about your money which definitely makes you a better person.
The best reason? You can make money by having money – if you do it smartly!

I know that you already know it, but it’s nice to be reminded.

$100 per month makes $1,200 every year. Let’s assume you invest it for 30 years and average a conservative 8% annual return. Instead of having $36k in a checking account, you will have accumulated a little more than $150k. Pretty insane? Yes, and it started from changing your spending habits.

One very last thing before we get started:

“Creating your investment portfolio can take a brief time, probably up to 30 minutes. So grab yourself something to drink and let’s get started!”

The Steps Covered In This Guide How To Start Investing

There’s four main steps you need to go through in order to set up a investment account. If you follow this guide and the four steps, you’ll have your own investment portfolio set up in 30 minutes or less. It’s nowhere near as difficult as setting up a investment account from scratch. Good news, huh?

4 Steps on How to Start Investing

Choose your mix of assets
Choose the preferred investment platform.
Choose your funds.
Off you go!

Step 1 – Where To Start On Investing?

There are different ways how to start investing.

Consider what you want to own. In my opinion, there are basically three main ways to invest, and you’ll find the answers in this site.

a) Gold / Silver

b) Real Estate

c) Stocks / Mutual funds

If you are a beginner, I definitely suggest starting with the last – stocks and mutual funds. I recommend this because it’s a good starting point for real estate. It is nice and quite safe to keep the money in gold but stocks / mutual funds grow the money.

Related: Check, what’s your net worth

So, let’s go with stocks and mutual funds.

Here are my reasons to invest in stocks:

Quite safe to start with.
Tons of guides and support forums on how to increase knowledge on mutual funds and stocks.
Proven growth over years.
Minimizes the effect of inflation on your money.

What should be your focus?

Investing for 2 to 5 years

Over a period of time, bonds will generate anywhere from 3 to 8% annually. If you have an objective to reach in two to five years, bonds are most appropriate, because they tend to be more stable than stocks. Also, they generate a higher income than cash. They’ll fluctuate, but not to the degree of stocks.

Investing for 5 or more years

For your goal that’s over five years out, you can weight your portfolio more toward stocks. That’s because they’re the most likely to eventually outpace inflation and get you the most return. That’s the important part which you should keep in mind.

You should expect fluctuations. That’s the case with stocks, as they can fluctuate quite a bit but, over longer time periods, stocks have reliably generated about an 8% annual return over the course of 70-80 years.

So, if you need to invest for a short time, then your mix of assets should contain primarily index funds. If you are looking at longer time horizons, then stocks.

So, you are here, good!

Let’s go deeper.

Step 2 – Choose Your Investment Platform

Where do we put money? Slow down here! We need to make only smart choices and you are reading smart money spending, right? I am here to lead you through tough decisions.

Stocks and mutual funds are managed by investment banks. What’s behind the fancy name? Groups of highly talented people who get the money after you get the money. So their aim is to make your money grow.

So let’s talk about possibilities. We appreciate hand-made work but we agree that mistakes occur. There are more mistakes in hand-made work compared to automated work. That’s why we need a good blend of hand-made and automated work. It’s called Robo advisory. These are well-optimized programs helping you to invest money wisely.

I’ve reviewed different banks for your savings here and found that Motif is the best choice for beginners in the investing world. They tend to have a better approach than the older and bigger banks, and we know that big ships turn slowly.

However, if you want to invest bigger amounts, then Betterment is the best solution for it.

Step 3 – Choose Your Investment Mix Of Assets

Basically what happens now is that you will want to get a mix of assets– U.S., Foreign, Dividend Stocks, Emerging Markets and Natural Resources. Depending on your age, risk tolerance and income, they will choose the right balance.

Don’t worry about anything, because they have taken care of people who are much smarter than we are. I started that way and after that educated myself. And you know, the more you learn, the more you know that there’s a much bigger world behind the investment. The whole science. So I trust my financial advisor.

Bonds and mutual funds

A smart choice on how to start investing would be mutual funds. You can join brokerage firms, where similar deposit rules apply as for stocks. You can also purchase mutual funds through your local bank, often for less than $1,000, when you have become a loyal customer. It is basically a pool full of money and managed by a professional money manager.

Good!

Step 4 – Off You Go – Now You Know How to Start Investing

No need to worry, your money is in good hands. Now these are people who know how to invest. You can always contact your bank if you’re having any questions.

What to do next? Earn money, save it, invest it! It should be the cycle. If you have this feeling, you’re right. If you have basic investments, you can think wider. As I said, stocks and mutual funds are the safest ones. No need to worry about robo-advisors. They are actually quite smart despite differing opinions.

Keep your eye on your investments. Analyze what the market does and what’s the outcome for yourself. If you read different resources, then you will get hints as to how A affects B. Later, how A is connected with H and how B affects it. Even later, you can find connections between many different parts and that develops your financial skills.

That’s how I developed and I can’t find any reasons why you can’t do it. I believe in it.

Useful Resources For Beginner Investors

What you can do is educate yourself on how to invest money the best ways. Believe me, it’s the best investment in life. And it’s free. Almost. You need time. I was 28 when I realized that time IS the most important resource. And you should appreciate the time you have.

I suggest you read following financial resources on how to invest:

Investopedia – Nice guide for investment world. Up-to-date news. My everyday resource.
Money Tree Podcast – Nice podcast where-ever you are riding, driving, running. A nice thing about podcasts is that you can do several things at the same times. I like to ride and invest. However, I can’t to it simultaniously.
Quora – I like brain-juice. And I need it a lot! It is like Instagram but it’s much more interesting and educational. You can pick your favorite topics and you will get good.

Related: Which partner to choose – Betterment, Wealthfront or Vanguard?

Also from my side:

How to Save Money (like this how- to- invest guide, but how to save money for investing!)
Best Credit Cards (and how to use them!)
Some Other Investing Tips

Investing Returns

For beginners, let me provide some basic backround on what to expect.

The stock market is centuries old, so nothing new. It has helped build and hold wealth for centuries. Over the Last 100 years, inflation in the USA has been 3.27% annually. This means for every $1000 you will lose $32.70 per year. Isn’t there something which you can do smarter?
The The stock market’s average annual return from 1900 is 11.53%. So, which one seems better? Of course, save money and put it in stock market! There have been World Wars, the Great Depression, many wars etc. and it’s still creating value and from 2007 to 2015 it has returned over 8.4% annually. However, with hard times and even negative returns, the stock market averages a strong positive return over time.

Also, while the stock market doesn’t plunge every year, exceptionally good returns don’t occur each year either. That’s why it is suggested by experts and from me to start with long-term investments, not short-term.

If you need your money in 2-5 years.

Over a period of time, bonds will generate anywhere from 3 to 8% annually. If you have an objective to reach in two to five years, bonds are most appropriate, because they tend to be more stable than stocks. Also, they generate a higher income than cash. They’ll fluctuate, but not to the degree of stocks.

If you need your money in 5 or more years.

For a goal that’s over five years out, you can weight your portfolio more toward stocks. That’s because they’re the most likely to eventually outpace inflation and get you the most return. That’s the important part which you should keep in mind.

You should expect fluctuations. That’s the case with stocks, as they can fluctuate quite a bit but, over longer periods of time, stocks have reliably generated about an 8% annual return over the course of 70-80 years.

You’re not going to invest for such a long period but still keep that in mind when investing in stocks.

Mutual funds and bonds tend to be more stable than stock.

TIPS What To DO And What NOT TO DO In Stock Market

If you already know your platform, then the next step you need is to practice a basic investment philosophy. My risk tolerance was quite small, and so is yours as a beginner. Still, there are good fundamental tips to remember.

Control your emotions. Investing with objectivity will protect you from making really bad mistakes which can cost you a lot. You must be objective with your emotions like fear, greed, hope, passion etc.
Set long-term goals. Investing is not a get-rich very-quick opportunity. However, it is one of the leading practices to achieve it. You should evaluate your age, risk tolerance, income generation, rainy day fund, financial goals etc.
Maximize reward and minimize risk. Take care of your money. Don’t take too big a risk for small returns. Ideally you should take a little risk for huge potential gains.
Don’t worry about taxes too much. Stock has overshot its true value – sell it! It’s better for you to take your gains.
Buy best-in-class companies. Unless a company is deeply misunderstood by other investors, I suggest you always buy the strongest companies in an industry. Remember what we talked about regarding emotions? Sometimes you must forget something which sounds great but never grows your money.
Don’t be afraid to hold money – When there’s nothing to invest in, don’t do it. If you see bargains, consider and buy. It’s the same thing that if you don’t know how to invest, don’t do it! You don’t want to throw your cash just anywhere.
Be skeptical – always – Don’t believe the hype on Wall street and financial analysts. Use your own investment knowledge to analyze the financial analysts. They want you to keep investing. Also, it might be pure advertising if they have names and positions in the names they are advertising.
Don’t trust advisors blindly – If you’re not comfortable, then hold your horses! Think twice, three times – think even when you are totally sure about your solution. If your partner doesn’t make sense to you, why should you invest in it? That’s why it’s crucial to find a good financial partner.
Life insurance is not an investment – It can’t be an investment in every way. It is a basic need. If you have money to invest, then life insurance is a must! It should be considered as a series of premiums, not as returns you may earn.

Term life is the best life insurance you can choose, then take your savings and invest it in an index fund.

How Diversified Should Your Stock And Bond Portfolio Be?

This question is as old as investing. Let me tell you how I see it.

As I’ve mentioned before, it is important to diversify your investments. This basically means spreading your money out to different kinds of investments. How diversified your investment portfolio should be is a whole science and there are many different opinions, but it is clear that putting all your financial eggs in one basket is a recipe for a disaster.

Consider building a complete and globally diversified bond and stock portfolio that meets your individual risk tolerance. If one part will let you down, others will stand stable.

With Motif, it’s diversification is the best in the market I’ve seen.

Wrapping it up

Starting anything new can be scary but that’s not an excuse to procrastinate and avoid securing your family’s financial future. I got this feeling when I turned 30. I started to educate my financial side and this fear became anxiety to take actions! Good actions.

Most grown-ups aren’t educated in stock markets or investing. They just know that it is risky but today the most risky thing is not to invest.

If you are skeptical, then starting small is an option. Ultimately, successful investing is all about taking simple steps.

Wrapping it all up, successful investing is all about learning simple steps and executing them on fundamental principles on a regular basis. For future financial freedom is just waiting to get started.

Hope you are much more smarter and feel confident on how to invest and ready to enter the investing world. If you are having any questions, feel free to contact me. Also let me know of your investment stories.

Enjoy your future financial freedom!

Why should you invest and start building your wealth?