Are you learning how to invest your money? If not, you should be. If you are rich, are you spending your money in a way that will earn you more money? This article will introduce the reader to the basics of investing and provide tips on how to make wise investments. It will demonstrate to you the foundation of beginning with investments, as well as some of the most favorable assets you can invest in to make your money grow.
What Is Investing?
An investment is an asset that is purchased with the intention of earning income or increasing in value.
Just consider real estate, as an example. An income-generating asset is a house that you purchase with the intention of renting it out to tenants. If you buy a house intending to renovate it and sell it for more, that’s an asset that has increased in value.
The same goes for investing in shares. When you buy a share in a publicly traded company, you’re buying a tiny little piece of that business. When you buy a share in a company, you are buying a tiny piece of that business. If the company pays dividends to shareholders, this is a form of income from investments. You can make a profit by selling your shares after the company’s share price has risen.
There is a large selection of things you can invest in, which include stocks, index funds and exchange-traded funds, bonds, commodities, currencies, digital currencies, property and more.
Doing this will make your money work harder for you than if you just held it in cash.
Why Should You Invest Money?
Why invest at all? That’s typically the question that begins discussions on investing for beginners. The simple answer is to build your wealth.
Prices have increased over the years, something that is especially noticeable when it comes to items like eating out or travelling. This is something that many of us have noticed, not just those of us who can remember a time when milk only cost 5p. Inflation is defined as the rate at which the prices for goods and services increase over time.
One challenge with inflation is that it can cause the value of cash to go down over time. The amount of goods and services you could purchase with £100 fifty years ago was much greater than it is today. This is also true for the prices of goods and services; as they continue to increase, the £100 you have today will buy less in 50 years.
The benefit of investing is that it allows you to keep up with or exceed the rate of inflation.
Investing your money in ventures with high potential rates of return is the best way to grow your wealth over time.
How Can You Start Investing? Step-By-Step Beginner’s Guide
The next step in learning about investing is to find out how you can start investing. You have more investment options available to you online than ever before.
Here’s how you can do it!
Step 1: Create an Investment Account
You need an account with a broker that offers the instruments you want to invest in to invest in assets like stocks, bonds, commodities, and cryptocurrencies.
Some brokers will offer both live and demo accounts. A live account is one where you invest with your own money, while a demo account lets you use virtual funds to help you get a feel for the investment platform and how the markets work.
How to Set Up an Investment Account
Setting up an investment account is really very easy. It’s not much different than setting up a bank account. To start, all you need to do is provide your basic information, such as:
- Name
- Address
- Date of Birth
- Social Security #
You will be asked for additional information such as:
- What kind of account do you want to open?- traditional investment account, IRA, Roth IRA, or any number of others.
- Beneficiary info- who do you want to inherit the account in case you die.
- Bank account info- so you can transfer money from your bank into your investment account.
To create an account, you can follow these steps: It only takes a few minutes to sign up for an account. Follow these steps to create an account: As soon as you put money into the account, you can start investing it!
Step 2: Download the Investing Platform
One of the first things to consider when investing online is picking the right investing platform.
Where Can I Open an Investment Account?
A huge number of brokerages offer investment accounts. Among online brokerages, the most popular are Vanguard, TD Ameritrade, Charles Schwab, and Etrade.
You can open an investment account with most banks, especially the bigger banks.
MetaTrader 5 is the most popular trading and investment platform. It is designed for investing in a range of assets from a single piece of software. Rather than investing in different markets with different brokers, you can invest in thousands of markets with one piece of software.
Step 3: Choose the Markets You Want to Invest In
Now that you have an investing account and a trading and investment platform, you may want to consider investing in stocks, mutual funds, or exchange-traded funds.
This guide will give you a detailed look at different types of assets you can use for trading and investment, and how to get started with each.
How Does an Investment Account Work?
Once you open an investment account, you will actually have two accounts within your investment account.
- Settlement account– also called a holding account, this is where the money goes when you transfer money in from your bank. You can use it to purchase stocks, bonds, mutual funds, ETF’s and anything else your brokerage offers. When you sell investments, this is where the money goes after the sale is finalized.
- Investment account- When you buy an investment, it’s held in the investment account. This is where you will see what investments you own, how many shares you have, and how much those shares are worth.
What are the Different Types of Investment Accounts?
There are many types of investment accounts. There are too many things to list here or this post would be much longer than it already is. The most popular types of investment accounts are listed below.
Traditional IRA
You can open an IRA as long as you have earned income. There is no set amount of money required to open an IRA account with a broker. Some may allow you to open an account with no money, while others may require a small deposit. If you put pre-tax money into an IRA, your contribution won’t be taxed when you put it into the account. However, you will pay taxes when you withdraw money from the account during retirement.
Roth IRA
A Roth IRA is set up in the same way as a traditional IRA, but with a Roth IRA your contributions are taxed as regular income. With a Roth IRA you don’t pay taxes when you withdraw money at retirement. The IRS provides a comparison chart between traditional IRA’s and Roth IRA’s to help individuals decide which account is best for them.
401K
A 401k account is an investment account that is typically offered by your employer. The contribution limits for 401k’s are much higher than with IRA’s, and you can take your 401k with you when you leave your employer. Roth 401k is an employer-sponsored retirement savings plan that offers employees the ability to contribute after-tax dollars to their retirement savings. Employers may offer a Roth 401k option. This article from Investopedia explains the basics of investing in a 401k. It covers topics such as how a 401k works, how to contribute to one, and how to choose investments for a 401k.
403B Plan
Like a 401k, a 403b plan is offered by employers to employees of tax-exempt organizations such as nonprofits, hospitals, churches, and public education institutions. A Roth 403b option may be offered as well. Here’s a rundown of 403b plans from The Balance.
Self-Directed IRA’S And 401K’s
Self-directed IRA’s and 401k’s are set up to allow you to invest in alternative investments, which are investments that are not traditional stocks, bonds, and mutual funds. An LLC must be set up inside your investment account, and the LLC would own the investments. It can be a lot of work to set up a self-directed account, with all the fees and legal requirements, but it may be worth it if you want to invest in more than just stocks.
How to Start Investing in the Stock Market
The majority of people with investments have some of their money in stocks. No matter what method you choose to invest in the stock market, it will be the most effective way to grow your money.
You can purchase any of the aforementioned investments through an investment account or a retirement account.
Individual Stocks
When you invest in individual stocks, you are buying partial ownership of the company who’s stock you are investing in. Your stock’s value is constantly changing based on the company’s profit or loss. If a company goes out of business, you could lose all of your money.
Mutual Funds
Mutual funds tend to be less risky than stocks. A mutual fund is a collective investment fund that pools money from many investors to purchase a portfolio of securities. Most mutual funds have a specific focus or theme, such as healthcare, retail, growth, or income. Mutual funds are not traded throughout the day like stocks, but are instead settled at the end of the day.
ETF’s
ETFs are similar to mutual funds in that they are a collection of stocks bundled together into one investment. The similarity is that they are both derivatives. The difference is that options are traded throughout the day like a stock. Investment fees with ETFs are typically lower than mutual funds, and there is a great variety of options to choose from depending on your desired investment strategy. There is a range of risk levels for ETFs, from very conservative to extremely risky, with the potential for high returns.
What to Look for When Choosing an Investment Broker
You can invest in assets such as stocks, properties, and crypto coins directly, but it may be simpler for beginner investors to work with a broker. A broker gives access to all the markets in which an investor would like to put their money.
Choosing the right broker is essential to your success as an investor. Here are some tips for choosing the right broker:
- Always opt for a regulated broker: The broker should be licensed by your local regulator. In the UK, for example, the broker should be authorized by the FCA (Financial Conduct Authority), and should be qualified to hold client money and handle investments under the FCA Client Money and Assets(CASS) rules.
- Ensure the broker offers a wide range of markets: This will provide you with ample choices for making better investment decisions. Admiral Markets, for example, offers the opportunity to trade and invest in thousands of markets.
- Check their customer support: Since you’re new to investing, you may need more assistance initially. You’d want a team that is prompt and professional, yet friendly. The broker you choose should be available via email and phone, and should also offer live chat support too.
- Browse the broker’s website for education resources: Apart from articles and blogs, does the broker organise webinars and seminars to boost your knowledge? This will not only help you to gain knowledge in terms of investing, but should also give you an idea of the broker’s commitment to your long-term success.
- Check their commissions and account fees: The profit of your investments isn’t simply the sale price minus the purchase price. It’s the sale price, minus the purchase price, minus any fees the broker charges. If you are investing large amounts of money this can cut into your profits. At Admiral Markets, for example, our commissions for investing in shares and ETFs start from just $0.01 per share.
- Look into the broker’s financial security policies: Choose a broker that follows segregation of client funds (keeps your money fully segregated from its own assets) and offers negative balance protection.
What Are Some Alternative Investments For Beginners?
In this article, we focused on investing in the stock market, the most popular form of investment due to the ease at which beginners can get started.
While we do think that the most important thing to do is to start there are indeed other forms of investments that everyone should look at. Here are two of them:
Real Estate Investing
We’ve gone in extensively in this site about real estate investing, and in particular our approach of investing in single family homes around the country through turnkey real estate investing. It’s a tried and true approach to investing that most are familiar with.
It’s sort of like building a wall, brick-by-brick. After a while you have a solid, substantial wall to hang your future on, but it is definitely not flashy and does indeed take a bit of time to execute.
Precious Metals Investing
Why mention precious metals investing when the news talks extensively about things like crypto coins, day trading and others?
Because they have been around as a source of wealth for thousands of years and will continue to be around for thousands more.
Kurt has gone from the financial lows of the ’08 financial crisis to personal financial success. He is a professional real estate investor owning properties in multiple states.
One of his passions is financial education and the pursuit of financial freedom.
You can learn more about Kurt here.
