Investing is something which pushes you closer towards your any financial goal. Yes, many people
are scared of investing due to the potential losses it carries but what one should be truly afraid of is
not investing even a small amount.
For people who prefer interest providing savings account over investing should take in note that the
bank will provide at most 1-2% on average but investing the money can bring you at least 5% and up
to 7% which will be about 4 times more return than a bank would provide.
After going through this above-mentioned pro of investing, if you are willing to start investing, here
are a few steps on how you can get started.
1. Set your financial goals and get started with those –
The first step to every financial planning process is setting the financial goals. What
these goals can include are –
Retirement goals
Saving for vacation
Savings for buying a new car or house
Building wealth
Saving for a child’s education
Building an emergency fund (if you don’t have any yet)
Everyone should make a rough sketch on how much money they want to retire with
and at what age. The amount which you would need to retire with can be simply
determined by the 4%rule.
The trick is to take your living cost and dividing it by 0.04 or multiplying it by 25.
Assuming your expenses would be same when you retire, if now your annual
expense is $40,000 then you would need $1,000,000 to retire safely.
The other plans on the list are not at all exhaustive and can be a good start. It is
important for you to understand your goals as those impact the way you invest.
2. Determine your investment and involvement level –
Once you are set with the financial goals, the next thing you need to do is how much
you want to invest initially and on an ongoing basis to hit the goals and balance
those.
The amount being figured out, the next thing you will need to do is decide how
involved you want to be in the process.
Generally, there are 3 options –
Active Investment –
It requires the most efforts and also comes with most risks.
You would need to monitor and choose the stocks you want
to invest in and this option gives you very less diversification
in what you invest.
Passive Investment –
This has lower risk levels and takes less time to manage the portfolio
actively. You can pick out the lowest cost index funds and ETFs that
mirrors the broad indexes.
Robo-Advised Investment –
With a robo advisor, you will need to answer a set of mixed
(both personal and financial) questions to give the robo-
advisor all data they need to invest for you.
3. Choose where you want to invest –
To choose where you want to invest, there are a few factors to consider. If you have
decided for investing actively, choosing a platform with free stock trading would be
a good option.
If you want to invest passively, choosing an online broker that offers wide selection
range at low prices will work.
And if going with robo- advisor you would need to figure out which robo advisor you
would like to go for.
There are many other aspects which you need to keep in mind like the type of
account you want to invest in, if you would like
4. Get Started Investment –
As, by this point, you have figured out most of the work, you can start even if you
have a very little amount in your pocket to invest.
A $100 bill would work fine to get started with.
Once you have created the account and funded it, you must start your investment
purchases.
Following all the above-mentioned steps and doing some more researches will surely help you. Just
remember “If you start investing today, you can gift yourself a bright tomorrow”.
