Getting started with investing can seem daunting, particularly if you’re just exploring the idea for the first time. Here we’ve broken it down into some smaller steps that can help you to get started.
Set your goals
One of the keys to investing successfully is working out your goals and what you want to achieve by investing. You should think about your short-term, medium-term and long-term goals; these could range from planning an overseas holiday to investing for retirement. Once you have your goals defined, you can put yourself in a better position to create a plan and achieve the financial position you’re striving for.
Work out what you can afford to invest
When you’re looking to start investing, it’s important to be in a good financial position to cover your current expenses and obligations. You don’t want to end up in a situation where you need to pull your money out of an investment prematurely to cover an un-expected expense or living costs. If you do pull your money out prematurely, it could result in you losing money on that investment or other impacts on your goals.
While you’re working out what you can afford to invest, it’s also a good time to look at your overall budget and see if there are any areas you can cut back on your non-essential expenses to redirect that money to achieving your investment goals.
Figure out your risk tolerance and investment timeframe
The type on investment that you choose will largely depend on your risk tolerance and investment timeframe.
Any type of investment comes with some level of risk and volatility. Generally, investments with a higher potential return come with a higher risk of volatility and negative returns in the short term. You need to figure out how comfortable you are with risks and volatility before making an investment decision.
The timeframe you plan to invest for may also impact the level of risk and volatility you can accept. If you intend to invest for a short time frame, a volatile investment such as shares may not be acceptable as you don’t have the time in the market to ride out the ups and downs. Similarly, if you are looking to invest over the long term, a less volatile investment such as an interest bearing savings account may not provide the right level of returns to meet your goals.
Do your research
There are many different ways to invest money, and there’s no single ‘best’ solution. The right option for you will depend on a number of factors including your risk tolerance, investment timeframe, how active you want to be in managing your investment and the amount of money you have to start with.
To find the right option for you, you’ll need to do your research. Some of the most common investments include shares, bonds, managed funds, precious metals, property, forex and cash. It’s important to understand the characteristics of the different options, and when you do identity options that seem suitable for you, do as much research as you can to understand those assets and how to maximise your investment in them.
To be successful with investing, you should also gain an understanding of the key investment principles that apply no matter how you choose to invest such as diversification, risk vs. return, timing and compounding returns.
Seek professional advice
Even when you’ve done your own research to gain a sound understanding of investments and the options available to you, it can pay to seek professional advice. A professional adviser can take into consideration your personal circumstances and your goals and can apply their knowledge and experience to help you come up with a plan to achieve your goals.
They also have the knowledge of tax and other legislation that you may need to consider when investing.
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