When we think about investing for this first time, various questions may run through your mind. What to invest, where to invest, how to invest and the list goes on. In general, every investor takes a chance because there is never a guarantee for returns. How much are your investments returning can never have a predictable answer. You can grow your money through investing, but you can also often lose money as well.
We are here to give you a guideline on the basics every beginner needs to know when it comes to investing. By this you will be able to understand how you need to prepare yourself to gain the best as an investor. It’s about molding within yourself, a reasonable and calm attitude for a decent return amidst a few possible downturns.
- Investment is a risk?
So, to begin with, what is an investment actually? It is an act of tying up your capital for a long-term financial benefit. In other words, you are committing your money for an investment with a hope to earn higher returns in future, whilst also knowing there may be possibilities of you ending up with less sometimes. Therefore, every investor needs to have the willingness to take a risk, whether it may be small or big. It is the very nature of investments where returns and risks are inseparable.
To start investing, there are many types of investment and tools that can be considered. These may contrast from traditional “paper” assets (like stocks, bonds, and cash) that are publicly traded to alternative investments that are defined as “exotic assets” (like antique furniture, real estate, private equity, cryptocurrency) that can diversify your portfolio.
Most significantly, investing means dealing with Stock Market with your funds.
Even though there are many mediums for investing, still article mainly looks at dealing with stock market and what needs to keep in mind when investing. Although there are different ways to initiate investments, the principal of investing remains the same; it is all about putting your funds to grow by taking a gamble while there is no guarantee for greater returns as risk always prevail significantly. To limit this, what can be done is to bring sense when putting your funds for investments which will be discussed in below points.
2. What is a Stock Market?
Most of us probably have heard about Stock markets – simply defined as a place to buy and sell shares. So, what happens in a stock market? What are shares and what do we do with it? Well, when you enter the stock market you have an opportunity to invest your money in several businesses which belong to different industries. These businesses offer you shares, of which each of them resembles a share of ownership for that company. Every person who buys those shares – essentially becomes an investor (commonly called as a stakeholder), where you start owning a tiny part of that company. The share of the company which you own can be further traded with anyone you wish to sell to. Isn’t this amazing the control you have for your stakeholder ownership?
These stock market transactions are determined by the share price. Initially, each company sets the price for their shares when offering to the market for the first time. However, the price of a share is never fixed. Instead it fluctuates frequently on daily basis depending on the market conditions. If the buyer sees that the company is suffocating in financial terms, prices are likely to fall, while if prosperity of company or boom in the industry is predicted, then prices are likely to hit high. It is all about how you deal with the risk and return.
3. How Predictive are the Returns? You can gain and you can lose it all.
Do you know what level of growth you can expect from investing? How much more are you aiming to earn in 5 years through the investment? Every investor in general is curious to know the answers for these questions, however in reality these are blunted. With all time low interest rates which being around 1.3%, it would be a good bet if you can earn around 5% interest with the money you have. But this comes with of course with risk.
Maybe we can help you to have an idea what you can get to, but no one can guarantee these predictions. Therefore, as a beginner it is important to bear in mind that whenever you step in as an investor, it means you are willing to take the risk whether great or small.
5 Golden Rules of Investing
- The higher the risk you willing to take, the higher the return you will earn and vis-à-vis.
- The higher the risk you willing to take, the higher the return you will earn and vis-à-vis.
- The higher the risk you willing to take, the higher the return you will earn and vis-à-vis.
- The higher the risk you willing to take, the higher the return you will earn and vis-à-vis.
- The higher the risk you willing to take, the higher the return you will earn and vis-à-vis.
4. How soon can I Invest?
No one can make someone invest. If you are wondering “is investing right for me”, then you should be taking the call on your own. The right way to do so is to question yourself. Why should I be investing? What I am looking at to invest? Do I have enough funds to invest?
You may sometimes notice that historically people who have invested in stocks/shares have been ever so successful financially. But there is never a guarantee that this applies to every investor. It all depends on your personal circumstance.
Monetary satisfaction – Do you feel that your savings are not offering the best rates, therefore feeling despaired and want to take more risk for a better return. This gives the green light to go and invest.
Be honest with your investing capacity – Are you financially stable to meet your daily expenses? Do you struggle to settle your monthly credit card payments and have little savings? Then it’s time to think twice before you invest.
Seek the right advise beforehand – Always make sure that you get the right advise from someone you can trust or a seasoned investor, and do not take the chance unless if you have enough money to lose.
5. To what Extent can I invest? You shouldn’t invest more than you can afford to lose.
Most people think that for you to begin your journey as an investor, you should be flooded with funds that you can afford to invest. But this is not always the case. Beginning as a smaller investor, understanding the hurdles you may experience along the way for a couple of years, can essentially help you to establish a firm foundation for a bigger investment in future. Instead of investing large chunks of money at once, is a lot riskier than just simply beginning small.
However, on the other hand, it is always important to remember that “you should never invest more than you can afford to lose”. Therefore, as we have mentioned before, first and foremost you need to get the greenlight and the kick start earning on the stock market in a decent way.
6. The Most Affordable Way to start Investing is on-line.
Presently there are wide options available to start your investment. However, if you are looking for the cheapest offers, then you will want to go it through an online platform.
To buy your shares online, will involve a 2-step process; where first you need to choose the platform through which you want to invest and then decide what investments you want to buy. To simplify this, it is something like choosing which phone shop do you want to visit and then deciding the phone model you want to buy.
When choosing between platforms, you need to understand which platform provides the best facilities at the most affordable rates.
7. What is a Share?
A share can be simply defined as the smallest and single unit of ownership of a company. Meaning, dividing up the value of a company by the no. of shares issued to the market. For example: if the company is worth $100 Mn, and 1 Mn shares are sold in the market, then the price of a share is worth $10. The share prices fluctuate very frequently depending on the demand and supply.
Companies issues shares so that they can raise money to fund business activities, while the investor benefits by owning a share of the business and enjoy company success. There are mainly 2 ways in which you can make money from investing in shares. When share value increases and;
- If you wish to sell the shares – you earn profit
- If you wish to hold the shares – you earn dividend.
8. Investment Fund.
It is a pool of funds into which several individual investors contribute to. The fund is usually an alternative way of buying shares. Instead of you directly buying shares on your own, you give your money to a specialist who finally uses all pooled funds to buy chunks of shares from a range of leading companies. These funds give you the chance to have a share of several different assets in a single investment and thus lowers your exposure to risk.
To invest in funds – all you need to do is to buy fund ‘units’. For example: if you want to invest $10,000 to the fund, and a unit costs $5, then you need to purchase 2,000 units. Just like shares, value of each unit changes daily.
Funds gives you an opportunity to invest in almost anything. Every investment fund has a specific focus, which can vary from a region, industry, type of investment. For example, a fund that focuses on acquiring shares from “nanotechnology companies in emerging markets” – all these involve a high degree of uncertainty, that can either bring massive gains or massive losses if things go bad. Therefore, which fund you choose depends on your attitude to risk.
9. Concentrating on investing in an ISA would be a safest ways to start
ISA stands for Individual Savings Account. In UK, everyone above 18 years of age has a £20,000 ISA allowance where they don’t have to pay tax on any stock market gains they make. This is a huge advantage to start investing with less risk. How it works is, you will get an ISA allowance for each year which allows you to save within the Tax free bracket.
You have all the liberty to use the combinations of selecting to use all the IS allowance for stock and shares you can partially save in a Cash ISA and rest you can use in Stock and Shares ISA.
(A detailed article on ISA will be shared in WSE shorty)
10 Do your Research First.
If you are investing for the first time, you may not be clear which investment to pick or how much of risk it may bring. Therefore, before making an investment, it is always important to do your own research. There is a plenty of information which are freely accessible online.
Below given is a list of websites that give up to date information and detailed analysis to decide your best investment.
