Deciding to start investing your money can be a very wise choice, but you have to make sure you’re doing it right. There are many different things to think about when looking into investing and doing your research is an essential step towards not throwing your money away. While this beginner’s guide is a great start for anyone looking to dip into the world of investing, every investor should know that there’s always more to learn, as with many other endeavours in life. We’ve put together this handy guide to give you a good idea as to how to start investing and what you could potentially invest in.
Table of Contents
How Much To Invest?
This is a very common question among new investors and sadly there is no perfect answer. Every investor is different and has varying goals. Some may be willing to put larger sums of money into riskier investment opportunities while some may be looking for a low-risk investment for saving purposes. The best piece of advice we can offer though is to not invest any more than you can afford to lose, whether it’s on high or low-risk investments. Even a low-risk investment has a certain chance to go badly, it’s just far less likely. It’s generally agreed though that saving around 20% of your monthly income is a safe bet as part of the 50/20/30 budget rule, and out of that, you could allocate some to go towards investments. But of course, if you can’t afford that without being left short, invest whatever is comfortable for you.
High Or Low Risk?
Again, this all comes down to your financial situation and personal preference. We can’t advise you to put money into high-risk stocks as that would be entirely irresponsible of us. However, there is a reason that people do it and it can pay off if you’ve done your research and have a bit of luck. Generally speaking, the higher the risk, the higher the reward and it’s all dependent on how much you’re willing to gamble on a particular investment. This is ultimately down to you but just remember, you can still make a profit on low-risk investments and it’s worth having some of these even if you’re more interested in high-risk options as they can act as a sort of safety net.
Investing Methods
Finding the right medium to invest your money is your next big decision. There are several ways you can do this but primarily today, you’ll be choosing between an investing platform or app, or a financial advisor. As a first-timer, you likely don’t have enough wealth to make it worthwhile for an expert investor to do the work for you, as they take a percentage from your profits for their hard work. These experts often work with individuals that are prepared to start investing with five figures or more. These apps are generally well-designed for newcomers to investing as they don’t require minimum deposits for creating accounts and are also simplified to get you better acquainted with trading.
Types Of Investing
There are many different things you can invest in, and most trading apps will allow you to trade units of stock in many different markets. You could have investments in the stock market and the cryptocurrency market, for example, via the same platform. There are many other types of investments that you can make too, and we’ll discuss the options below, starting with the two we just mentioned.
Cryptocurrency
You might have heard this word being used a lot, especially in recent years. Cryptocurrencies have become an incredibly popular investment option primarily based on the outstanding success of Bitcoin investors. There are many success stories of people becoming millionaires overnight, but this was due to ordinary people getting into this market early, paying just a few dollars per Bitcoin. And now, a single token of this digital currency is worth around 75,000 CAD. There are also lots more cryptocurrencies appearing and gaining great success like Ethereum. If you’d like to learn more about how to buy Ethereum, check out Wealthsimple’s blog. While these astronomical gains are unlikely to happen again, the cryptocurrency market still draws in lots of people due to the unpredictable, volatile marketplace. It’s a high risk, but the market has proven that high rewards are possible. It may be wise to consider adding some crypto to your investment portfolio in some form so that you can benefit, if only slightly, from any future spikes.
Stock Trading
Stock trading is the most common form of trading, and this is where you’re essentially buying and selling shares in a company. To better understand the process of stock trading let’s look at Amazon for example. This global corporation has over 500m shares in total and owns around 58% or so themselves, making them the majority shareholder and therefore, ultimately in charge of their own business. For simplicity, let’s say there are exactly 500m shares of Amazon and that the price of each of their 500m comes in at 3500 USD. That puts the total value of this company at 1.75 trillion USD. To put it simply, you can buy one of those shares for 3500 USD and if the value of the company increases, you may be able to sell that stock for much more than you bought it for. Of course, if the company’s value drops, so does the value of your individual share. With these trading platforms, however, you don’t even have to buy whole stocks. Instead, you can buy a fraction of a stock, making this much more accessible to small-time investors.
Mutual Funds
There are several other types of investment opportunities out there and one of these is known as a mutual fund. This interesting method of investing involves many investors putting their money into one specific portfolio made up of different stocks, bonds, and options. While that may sound a bit confusing, the main benefit here is that a professional trading expert will manage this fund, so you don’t really have to do anything, let alone understand the difference between options and stocks.
Bonds
This is essentially a way for you to loan your own money to an organisation, which is often a government but can also be issued by a company. This is basically an official certificate in which that entity will pledge to pay you interest for your loan, or bond until they then pay you back for the bond at a pre-arranged time. These are a fantastic investment opportunity to add to your portfolio as, while they won’t necessarily make you a huge profit, they are fairly low-risk, and offer you a guaranteed addition to your income a few times a year. You’ll also then get the full bond value back once that bond has reached maturity, which basically means you’ve held onto the bond for the agreed amount of time. Of course, you can sell those bonds, but this won’t necessarily be for the exact amount you originally invested and could either result in a gain or a loss depending on when you sell.
Investing In Real Estate
There are a few different ways you can invest in real estate. Firstly, you could buy property, and then there are a few ways for you to make money off of this purchase. You could rent out that property, adding a steady income stream, using some of that to pay off a mortgage or if you bought the property outright, you’ve got a stream of profits coming in that you could then redirect into other investments. You could also buy older, dilapidated properties for cheap, and use your fund to renovate that property, marking the price up significantly when you sell. This does come at a cost though, both in terms of finance and time. This method is called house flipping and requires a lot of focus and dedication to get a home renovated within the space of 6 months to a year at most. Owning these properties for too long can be somewhat of a money-sink as you’ll end up having to pay more of the mortgage in the property than you’d originally planned for and so time is of the essence here. As well as these two options, you can invest via what is known as an online real estate platform. This is essentially crowdfunding a property, where a number of individuals invest their money in a particular property or project and earn dividends over time, and if that property gains value, the shares you have in that property also increase in value too.
Keep Diversifying Your Portfolio
Ultimately, the smartest thing you can do when starting on your investment journey is to keep looking into new ways to diversify your investment portfolio. This is a phrase you’ll see a lot, and there’s a good reason for it. This is the investors way of saying “don’t put all of your eggs in one basket”. Spreading out your investments across different investing opportunities from stocks and bonds to cryptocurrency and property reduces your risk of being impacted too much by a big loss in one of these areas, as you have other investments to fall back on.
