How to start investing? A beginner’s guide

Before you start investing make sure you are prepared by following these simple steps: 

What are your goals?  

You should be clear about why you are investing and what you expect. This could be as simple as ‘I want my money to grow faster than inflation’ or ‘I want to retire early’, but it could also be ‘I want to invest to pay for my children’s university’ or ‘I want regular investment income.’  

Defining your goal will help you understand how long you need to invest for and how much risk you will need to take. 

Set your risk levels 

In general, the amount of return you can expect from an investment is linked to the level of risk you can take. The higher the risk, the greater the potential for higher returns – and losses. 

Understanding how much risk you can (and are able to) take will help determine what combination of assets you need to invest in to achieve your goal. 

Investors with lower risk profiles might invest more in high-quality government bonds and less in stocks. The higher your tolerance for risk, the more likely to invest in riskier areas like emerging markets or commodities. The choice is yours, but whatever level of risk you feel comfortable to take, it is good practice to build a diversified portfolio. 

Choose how you want to invest 

There are a few different ways you can start investing. Each involves you sending the money you want to invest to a company that can buy and sell the investments for you. They then put the investment into your trading account.  

Bank 

Your bank will almost certainly offer an investment platform – but be careful, as the choice of what you can buy is often limited to the products issued by that bank. 

Brokerage 

Brokerage companies specialize in buying and selling securities and you can usually invest through a website or app. They will usually provide you with access to all major asset classes and markets, and may provide you with investment advice and research to support your decisions. Make sure you understand their fees and how you will be charged before you choose your broker.  

Financial Advisor 

If you are looking for more guidance then a financial advisor may be the best option for you. Indeed, a financial advisor will buy and sell the investments for you as well as giving you more detailed and personalized advice on your overall financial position. Financial advice may come at a high price that not everyone wishes to pay, and some financial advisors are limited in what they can buy and sell, so you may find your options restricted.  

Robo-Advisor  

Normally an app or a website, these ‘robot’ financial advisors build a portfolio for you based on basic information you provide about your investment goals. They typically charge a lower price than traditional financial advisors. and represent a good way to start for many investors. Still, robo-advisors can be inflexible and offer only a limited number of options of what you can invest in.  

Before you decide which route is best for you, make sure you understand the costs and fees of each option, as well as considering any additional features or services they offer. Also, please check to ensure the company you choose is regulated and approved in your country.  

Get diversified 

Once you have chosen how you want to invest, you can start to create a diversified portfolio. Diversification is the principle of putting your eggs in different baskets and a diversified portfolio will contain a combination of different securities across asset classes, sectors, regions...  

Each asset class behaves differently in different market conditions, so if one asset is doing poorly, then another might be doing well. For example, gold often rallies when the stock market is having a tough time.  

Different industries also behave differently – technology stocks might be on a rally while, at the same time, oil & gas stocks are doing poorly. 

Diversification doesn’t keep you from losing money, but it can dampen losses and reduce the overall risk of your portfolio. By keeping your eggs in different baskets, you can drop one or two and keep cooking! 

Monitor and adapt 

Once you have a nicely diversified portfolio that is working hard, you need to make sure that it continues to deliver as the conditions in the markets change.  

Check in with your portfolio regularly, review how your different holdings have performed and see if you are on track for your goal. If you find that you are falling short of your goal, you can do some research or talk to an advisor who can help you make the right changes to get you back on track.