Investing is not as hard as it may seem. In principle you have to put the money to work for you so that you do not have to take your second job or work overtime to get more money. There are several types of investments that do not require large amounts of money to start investing.
Step 1. Put your finances in order. To start investing without looking at your financial situation is like jumping into the pool without knowing how to swim. Before you start investing, you need to evaluate your financial situation, know how much you earn, how much you spend and how much you can save to invest. Fortunately, you can start investing with relatively small amounts of money. The sooner you start to invest, the better your long-term results.
Step 2: Learn the basics. You do not have to be an expert in finance so you can invest, but you have to have the basics to make the best decisions. Learn what is the difference between the main financial instruments, shares, bonds, investment funds, deposit certificates, etc. You also need to know some basic investment principles such as asset allocation and diversification of investments to mitigate the risk and get the best results.
Step 3: Set your investment goals. Once you have found out what is the amount you have for investments and what are the basic notions you need to set your investment objectives. Although all investors want to earn money, your goals need to be more specific. Capital security, earnings, or capital appreciation are a number of factors to consider when setting your goals. What is best for you depends on your age, the moment of your life and your needs.
Step 4: Determine your risk profile. A decrease in the total value of your investments gives you the creeps? Before deciding what investments are right for you, you need to know how much risk you are willing to assume. Do you like car racing and amusement parks or do you prefer to read a good book in the quiet of your house? Your risk profile varies depending on your age, income, and financial goals. Find out how well you tolerate the risk before investing.
Step 5: Identify your investment style. Some investors prefer speculation while others prefer long-term investment. Once you have set your investment goals and risk profile, you need to see if the two are compatible. If you like racing cars, but you prefer capital security then it is better to tackle a conservative strategy. A conservative strategy involves investing in relatively low-income, low-risk financial instruments, while an aggressive strategy implies taking high risks to get high profits.
Step 6: Find out and understand the costs of your investments. It is very important to understand the costs of your investments because they can reduce your investment’s profitability. In principle, passive investments tends to have lower costs than active investments. Each type of investment has different costs. Before investing, be aware of all the terms and conditions that this investment entails in order not to have surprises later.
Step 7: Find a good consultant. To start investing, you need a trusted investment broker or consultant, with whom you can communicate very well and have professional experience and a good reputation. Establish some criteria that it has to meet and asks for recommendations. Schedule a meeting with him to see if he is the right person to guide you to the investment world and set the terms of your cooperation if you are happy with your choice.
Step 8: Choose the investments. Now you have all the elements to choose the investments that will be part of your portfolio. Depending on your investor profile and the consultant’s assistance, you can choose the investments that best suits your needs. To have a balanced portfolio, you need to diversify and allocate your assets wisely. With the asset allocation you will choose investments with different risk grades but also with different returns, from the safest to the least secure according to your risk tolerance. By diversifying, you will have a portfolio that will contain financial instruments from different categories and from diverse domains.
Step 9: Do not make emotional decisions. If you have not found out before, it’s time to know that emotions can negatively impact your investment. Do not let the fear and the greed to diminish your gains or increase your losses. Make an investment strategy and respect it strictly, otherwise emotions will influence your decisions and may be a greater enemy than ignorance. Greed can lead you to maintain a position in the hope that prices will increase even if the market is declining. And fear will make you sell a holding too early or keep a loss asset. If your portfolio does not let you sleep at night, it is best to reassess your risk tolerance to adopt a more conservative strategy.
Step 10: Evaluate and modify. The last step, as important as the others, on your investment journey is to evaluate and review your investments. Over time, depending on the evolution of financial markets, the structure of your portfolio will change, and you will need to make changes to it, to balance it again.
Start investing as early as possible and keep your interest in the investments you make. With time you will gain more and more experience and make wiser decisions.