Investing For Beginners: How To Get Started?

What is Investing? 

In layman’s terms, investing is allowing your money to work for you. In other words, to invest, you put money into something profitable today and go on with your normal life, then return some years later to see how much it has grown. It is that simple. However, investing comes with managing risks. But the interesting thing here is that the higher the risks involved in the investment, the higher the possible reward.

Know Your Kind of Investor

The first thing to do before going into investing is to identify the kind of investor you are: active or passive. Your investment goals and risk limits can tell whether you want to be actively involved in managing the growth of your money (as an active investor) or you would like to completely leave this task for others (as a passive investor). You need this knowledge to guide your choice of investment options, which range from stocks to mutual funds. It also helps you to pick the best service providers.

Generally, active investors prefer to buy and sell individual stocks. They do it by researching investments and building their portfolios through an online broker. But passive investors would rather have mutual funds so that they can allow a robo-advisor or financial investment advisor to strategically manage everything for them.

Determine What You Want from an Investment

Do you want to invest for growth or income? The former requires choosing an investment option that accumulates your funds. Here, you re-invest the income you have generated in the same investment and allow it to grow over a long period. But the latter allows you to directly receive any income generated by the investment.  That is, it pays you dividends. Although you cannot expect to gain so much from it, the periodic small payouts can help you meet some personal needs that are not capital intensive.

What Can I Invest In?

Invest in what you know and understand. This could be shares, bonds, mutual funds, property, or/and precious metals (such as Gold). Any investment opportunity that is complicated for you to understand would most likely bring you loss instead of profit because there is a high probability that you will make a costly mistake in the process.

What are Funds? 

Funds refer to a mix of assets (cash, shares, government bonds, property, and so on). When you put your money in funds, you diversify your investments and reduce market risk. That is, you always get to have some of your investments doing well even though others might perform poorly at some points in time.

You can invest in an active fund, which requires a hands-on approach to earn high returns from beating the index of the stock market. Or you can invest in a passive fund, which simply follows a market index. While you will need to pay a professional fund manager to help you run an active fund, you will not require such services for a passive fund. 

What are Shares?

You buy shares when you want to own a small stake in a registered company. So, units of ownership in a company are called shares. But why do companies sell shares? They do it to expand their businesses using money raised from the sales.

Demand for shares increases when a company is anticipated to do well in business, and this pushes the price of its shares up. The reverse is the case for demand when the company is expected to have a bad time; likewise, its share price will drop.

The investors who buy shares are called shareholders. They have the right to use the stock market to sell part or all of their shares whensoever.

When to Start Investing?

The best time to consider investing your money is when you have excess cash that could take care of your basic needs for at least three months. You should invest some of this money so that it would grow and yield more money in return after a long period. The amount you decide to invest should depend on how much appetite you have for the risk, the circumstances in your life now, your financial situation, and of course your future ambitions.

How to Start Investing?

As a first-time investor, you might be unsure how to begin this whole process of growing your money over time. Well, there is no “almighty formula” or one-method-fits-all for anyone to start investing.  Again, how you start depends on you, putting into consideration your kind of investor, budget, and risk tolerance.

The first factor mentioned above is about whether you like to be an active or passive investor, while the second considers the amount of money you want to invest (€100, €500, €1,000, or more?). Lastly, the third looks at the amount you are willing to lose if your investments are unsuccessful.  

Therefore, the right way to start investing is to acquire adequate knowledge and understanding of the investment opportunities available to you before you commit your hard-earned money to any of them.

Lump-sum or Instalments? 

Instead of investing with small payments or instalments, you can use the whole large payment called a lump sum. A major advantage of this option is that it quickly grows your money by compounding your returns. But a major disadvantage with it is that negative changes in the market could leave you losing everything.

On the other hand, investing by paying a fixed amount of small money over time can help you to overcome any severe effects of market fluctuations. You can easily use this technique to respond smartly to price changes: buy more when prices are low and fewer when prices are high. But it does not yield returns as high as lump-sum investing. 

Using Stock Market Simulators

For beginners, trading in the real stock market can be practised using stock market simulators. You do not need to make any real-money deposit while using these tools. Instead, you use virtual money to trade a wide range of investment options that include stocks. Some simulators allow you to play competitive games with others to sharpen your skills in investing. An example of a stock market simulator is theInvestopedia Simulator, which is available free of charge.

How to Choose an Investment Platform?

Just like there are online stores where you go shopping for groceries, jewellery, clothes, drinks, kitchen utensils, and so forth, the online markets where you can easily buy and sell shares and funds are called investment platforms. Although most of them can guide you on the process of getting your money to work for you through their websites or applications, choosing a “supermarket” for investments requires a willingness to pay some fees in most cases.

There are up to three types of fees you may find on an investment platform. The first is usually a platform fee – charged for using the website or application. The second can be called a trading fee – charged whenever you buy or sell investments. The third fee to look out for is a management fee – normally charged for buying a fund.

Therefore, the right way to choose from a list of investment platforms is to compare their services and fees and pick the one that gives you good value for your money. 

What are the best platforms or apps to choose from? You can find a list of them in the latter part of this article. But just before you do, let’s learn some more investment essentials. Remember that learning is important for successful investing.

Choosing a Tax Wrapper

When you want to invest your money in a tax-efficient way, tax wrappers are the best options for you. A “tax wrapper” is a kind of account that is used to protect (or wrap) some or all of your investments from taxes. It helps to legally prevent the government from taking any percentage of the yields from your investments.

Individual Savings Accounts (ISAs) and pensions are the most common tax wrappers. You can use either or both of them to protect the profits on your investments from dividend tax and capital gains tax for as long as your money stays within them. To do ISA, you invest within your individual savings account; whereas to do the other type, you put money in your pension account.

Online Brokers

Brokers are financial consultants or companies that help their clients to buy and sell investments at certain fees. You can get full-service or discount online brokers.

A full-service broker will charge you a substantial fee but will offer you a complete range of brokerage services, which will include retirement and healthcare advice. On the other hand, a discount broker will help you with some tools with which you can choose and manage your transactions at a lower fee.

Robo-Advisors

Under little or no human supervision, robo-advisors streamline investment advice and lower the costs of growing your money by utilising technology. They are online applications (robots) that help you make decisions about your investments by using online survey responses and algorithms. They are good for building wealth over the long term.

Minimum Deposits and Account Opening

Many financial institutions will not create an account for you if you do not deposit a certain minimum amount of money. They also charge some fees that relate to trading and account maintenance. For this reason, you will have to spend some time looking for an investment solutions provider that will accept to open an account for you with a minimum deposit and a range of fees that you can afford.

Nevertheless, you may find some firms that do not ask for a minimum deposit to register accounts for their prospective customers. You can also find others that have a minimum deposit requirement but ask you to pay lower fees.

Commissions and Fees

Since there are no charitable organisations providing brokerage services to investors yet, you must expect to pay some commissions or fees for buying and selling stocks and other investments. Some brokers will collect commissions for their services, while others will find a way to get you to pay them for their services. Investment platforms will also charge you some fees. So, if you intend to trade frequently, then you should expect the fees to accumulate and reduce the profitability of your investments.

Mutual Fund Loads

When money is pooled from a large number of investors to buy stocks, short-term debts, government bonds, and other securities, this kind of investment is called a mutual fund.  There are a lot of fees connected with this kind of investment. For example, every year, a management expense ratio (MER), which is normally between 0.05% and 0.7%, is charged by the mutual fund management team for every asset in the fund. Moreover, some sales loads are charged whenever an investor buys mutual funds. 

Despite that, the good thing about mutual funds is that you pay the same fees irrespective of the amount of money you have invested into them. That is why beginners can invest as low as €50 monthly in a mutual fund. So, try to find out whether you can afford the loads and fees attached to a fund that you would like to buy before you make the move.

Diversification and Market Risk

It is very risky to put all your eggs in one basket because if something bad happens to the basket you are likely to lose all your eggs. Similarly, diversifying your investments is the best way to ensure that no bad development in the market can make you lose all of them.  So, if you choose to invest your money in stocks, try to put it in two or more companies. However, it is difficult to do this with small money. The highest you can go is to diversify it among two companies. But if you choose mutual funds, then you can profit from a more diversified investment.

Best Investment Platforms

Beginners and experienced investors can use any of the following investment platforms, which are currently the best on the market:

CSX

Beyond free international transactions and cheap online payments, CSX is a digital bank that serves as a great investment platform too. Coming from Credit Suisse – a leading Swiss global investment bank – the services of CSX are of high international standards. They include the provision of accounts and cards, CSX Invest, sustainable investment, savings, mortgage, financing, financial planning, and pension provision.

CSX Invest makes it possible for you to use your smartphone to explore the financial markets. You can start investing with as small as 100 Swiss francs. It offers individual investment strategies that are environmentally friendly and attract no hidden costs.

In addition, CSX takes pride in being one of the few banks that can help their customers with sustainability. It believes that sustainable investing is smart, shapes the future towards a better life for all, and has become the new normal, putting ESG (environmental, social, and governance factors) into consideration. In a word, CSX is your ideal platform for investing sustainably.

Migom Bank

One of the challenger banks at the forefront of digital banking innovation is Migom Bank. It renders banking, securities, e-money, debit cards, and mobile app services. With a Migom Bank account, you can use its securities platform to gain access to the Eastern European stock exchanges and the US OTC Markets stocks for low-cost online buying and selling of stocks and commodities using fiat currencies and Bitcoins. It renders advisory and underwriting services for capital formation, proprietary cryptocurrency trading (via its universal blockchain link), as well as many other services through its prestigious partners.

It might interest you to know that Migom Bank’s business partners include major accounting and law firms, companies licensed by the UK Financial Conduct Authority, members of the US Financial Industry Regulatory Authority, brokerages passported by the EU, and many other regulated entities. 

Revolut

Revolut is an awesome London-basedneobank that offers you thepossibility of investing your money. You can invest in crypto, stocks, commodities (like gold), and vaults for saving money and quickly reaching your financial goals. It helps you to keep abreast of market movements by sending you notifications about the latest market news, such as changes in the prices of crypto and stocks.

Besides, with just €1, you can start investing in the shares of global companies simply by touching a button on Revolut. You can even trade commission-free. But you should keep in mind the variousfees that may apply.

Moreover, Revolut’s cryptocurrency and investment services are not FCA-regulated yet. In addition, it does not provide investment advice. So, you have to seek professional advice to use this platform. 

Starling Bank

Starling Bank is a neobank that operates under the regulation of the Financial Conduct Authority and the Prudential Regulation Authority in the UK. It provides many services to its customers. The services can be categorised into current accounts (which includes a personal finance marketplace), business banking, money transfers, and loans and overdrafts.

The Marketplace of Starling Bank is your connection to an innovative world of financial products. Through partnerships, this investment platform links you with third-party mortgage providers, smart pension tools, insurance providers, and several tools for investment management. The third-party products include Wealthify, So-sure, PensionBee, Churchill, and Habito.

Furthermore, you can use your Starling app to invest in an ISA and easily keep track of your account balance.

Monzo

Apart from helping you to earn interest on your savings account, Monzo is another great tool for investing. However, its investment features are available to only Monzo Premium and Monzo Plus account holders. You can find more information about the different types of Monzo accounts on ourwebsite.

What is more, this UK-based regulated online bank lets its Plus and Premium account users invest commission-free with another stock trading and investment company known as Freetrade. The eligible users can get 3 free shares that are between £3 and £200 in value, provided that they register a new account with Freetrade with a minimum deposit of £2.

Capital One

Anyone looking for a platform that can help them grow their money in preparation for retirement can count on Capital One, a financial corporation based in the United States. Through its subsidiary named Capital One Investing, it combines human experts and innovative automated technology to render investment advisory services that help make your money work for you.

This platform can analyse your situation and advise you concerning how to reduce taxes linked with your investments. It allows you to open different types of investment accounts: Brokerage Accounts, Retirement Accounts, Custodial Accounts, Trusts, Coverdell Education Savings Accounts, and Entity or Business Accounts. However, this investment platform is yet to be insured by the Federal Deposit Insurance Corporation and is subject to investment risks. 
 

About Risks 

We live in a world where there is no zero-risk investment option. The higher the risk you take to invest your money, the higher your gain/loss would be from the investment.

If you choose to save your money in the bank for a long time rather than invest it, you will still have to deal with the risk of it losing its value. While you may argue that the interests your bank pays you would compensate for the loss in value, remember that the rate will not likely be high enough to neutralise the effect of inflation (rising prices).

So, does this mean that there is no better option against inflation and interest rates? Of course, there is. You can invest in stocks, which usually beat interest rates and inflation with time. However, stock prices fluctuate, and this could mean a very low price when you are ready to sell.   

Therefore, the rule for dealing with risks is to diversify your investment. In that way, you spread the risk of losing so much at a time. 

Conclusion

Saving your money is good. But the most reliable way that anyone can successfully build wealth with time is by investing their money. You can use any of the investment platforms introduced in this article to start investing. Also, when you start, try to begin diversification of your investments early enough to reduce market risk. Good luck!