It is always interesting to know about different ways of reaching financial independence, and one of the proven ways to reach it is money investing.
In this in-depth article, we will guide you through the incredible world of investments and provide you with all the possible information related to this topic to make sure that your first-ever investing experience will not be bad. So, take a seat and keep reading the article on how to start investing money as a beginner and become a successful investor.
What is investing?
Before you put your dollar into investing processes, it is highly advisable to get to know the definition of this term, especially if you are a beginner and do not know what it is. In a general way, investing means a process related to putting time, money, or effort into something to get something in return (to get advantages or profit). However, we are talking about a specific classification of money investment, and this term is closely related to the financial sector.
In the economic field, investing means a process of purchasing different shares with the purpose of re-selling them for a higher price. However, dealing with investing in this regard is a complicated task because there are various types that you can pick as a beginner. So, let us dive into the financial world of investments and get to know the most common types of investment.
Different types of investment
Money investment is exciting and can suit everybody independently of their needs and preferences. In this short section, we will consider the top five most popular and demanding types of investment while indicating their unique features, pros, and cons.
Stocks
The first type and the most prominent name in the financial world of investments is the stock market (stocks is a short form). Putting this concept into simple pieces means that an investor buys a certain amount of company shares and becomes a co-owner.
But how to get money from this? It is a piece of cake because the owner of the shares does not need to do almost anything but wait. The chosen company, where the investor bought the shares, either experiences growth in terms of revenue/capitalization or loses its position in the global financial market. Considering this up or down, the price for the purchased shares becomes bigger or lower. Respectively.
Of course, any investor should decide what company to choose and how much money to invest into the shares. When the investor’s predictions are correct, this person will take advantage of the invested money and gain a profit. The profit depends on two factors:
- The amount of invested money;
- The growth of the shares (in percentages).
So, if everything goes according to the investor’s plan (the shares are going up), the investment brings its fruits in terms of money back. And if the shares’ price is going down – it is not a reason to be upset because the price can hit the top in the long-term run.
And if you have no clue what stock market to invest in, there is a graph indicating the market share of total world equity market value. The data provided by Statista.
From this graph, you see that the most profitable source (the US stock market) to invest in takes the predominant position in the market. Of course, you can try to start investing your money into other markets that you foresee as the successive and perspective ones. However, let us see the strengths and weaknesses of investing in stocks.
| Pros | Cons |
| Easy to purchase; | Risk of losing everything (if the chosen company becomes bankrupt); |
| A good choice for beginners (does not require a lot of money); | Emotional ups and down in terms of shares’ costs. |
| Liquidity. |
Cash
The second option to start investing for a beginner is cash investment. Compared to the first type (stocks), this type is not that risky and belongs to the short-time investment types (usually up to 90 days). And this type is highly recommended for beginners who do not want to face the problem of losing their money but wish to get a profit guarantee.
When choosing this type of investment, an investor puts the money into a depositing account in a short period indicated above to make at least something in return. Usually, this return is not significant, and the investor cannot count on a considerable money-back after ending this time.
Cash investment guarantees a 100% profit, which makes excellent sense for people who have just begun dealing with financial assets and want a positive first experience.
| Pros | Cons |
| An excellent choice for beginners; | A small money return; |
| A 100% guarantee of a profit; | A short-time investment option. |
| A low-risk type of money investment. |
Bonds
The next type of investment to consider is bonds. Simply, bonds refer to IOU, represented by three simple words – I owe you. Putting this simply, an investor buys bonds and thus lends their money to a specific company or government, expecting to receive a certain income. The total amount of invested capital, terms, and amount of payouts of this income (if several payments are planned), as a rule, are known at the time of purchase. Estimating your benefit in advance distinguishes this type of investment from others.
The only thing that most beginners should be afraid of is the bankruptcy of the company or governmental institution they invested money in. In this case, the investor can lose everything.
| Pros | Cons |
| The income is higher compared to the cash investment; | Risk of bankruptcy. |
| High liquidity; | |
| Low risks. |
Mutual funds
If you think about shared responsibilities and professional support in terms of investments, it is necessary to consider the option of mutual funds. This type of investment refers to a money pool created by many investors and managed by professional financial analytics and experts in the financial sector within the frame of a fund.
One of the most extraordinary things about mutual funds is using the services of experts who know how to deal with your money to make a profit. The return on a mutual fund is the sum of its total return and operating costs. The fund’s total income is determined based on its dividend (interest) income and the change in its net assets – Net Asset Value for the period.
The critical risk of investing in a mutual fund is the risk of losing your invested capital due to a decline in its net asset value. The reason for such a fall may be the quality of securities, changes in interest rates, and deterioration of the situation in the market.
| Pros | Cons |
| Operated by professional analytics and financial experts; | High cost of the services; |
| Low risks of losing your money; | Management abuse. |
| High liquidity |
Exchange-Traded Funds (ETF)
Exchange-traded funds (ETFs) are gradually gaining popularity in global financial markets. An ETF is a profitable way to invest in stocks or commodities (like gold, oil, etc.) in a broad region or sector. There are no entry and exit fees in ETFs. ETF discussions are subject to a share trading service fee. The historical stock market returns have been taken. At the same time, the risk of investing funds in the stock market is usually higher than that of investing in investments.
We have also prepared a list of the most prominent exchange companies that will not let you down. You will see what companies are worth your attention in the table below.
As you can see, the first position belongs to an American stock exchange company named NYSE, with a total market value of $28.19 trillion. If you prefer something more European, you can go to the London Stock Exchange market and invest your money there.
| Pros | Cons |
| A significant diversification of options, including stocks, bonds, cash, etc.; | Operating expenses; |
| Lower fees; | Lack of liquidity; |
| Immediately Reinvested Dividends. | Hidden risks. |
How to start investing?
After getting to know the definition of investing and its different types, it is the right moment to extend your knowledge on how to start investing and make money from this process. In this section, we will share a few steps that will help you be involved in this financial activity. But, you need to bear in mind that there is a lot of research work.
- Define your goals. As the first step, it is highly advisable to set a goal for your money. This goal can be a short-term financial boost or simply a plan for your retirement.
- Make room for your budget. After defining your goal, it is necessary to determine the amount of money you want (or are able) to invest regularly. This sum can be huge; for others – a small one. So, make sure that you can use this amount of money without a necessity for its usage.
- Determine the way of investing. We mean how you will manage the investing process – whether you can do it independently or need professional help from the experts or the industry.
- Choose the type of investment. As you already know, there are plenty of options to choose from. Under these circumstances, your primary goal is to decide which one is suitable for you and your money.
- Open an investing account. After determining all the mentioned above things, it is the perfect time to open an account where you can invest and make all investing activities.
You can start investing your money to make money when all these steps are behind.
How to start investing with little money?
Some people are struggling with a question – how to start investing with little money? And there is a myth that investing is possible with a huge bankroll only.
Nevertheless, the good news here is that there is such an opportunity even if you have a budget of $100 or less regularly.
The principle of starting investing money is similar to the general steps of starting investing. However, there are not so many options (types of investing) to choose from with a limited budget. For instance, you can pick the option of ETFs, which do not require a large lump sum.
One more way is to go to the method of a long-time investment. Even with a small budget, you can get a lot of money in the long-term perspective. For instance, you place $100 on your deposit account every month. After 20 years of depositing the same amount of money, you will get $24 000 plus a specifically determined percentage, which is set up by the financial institution you used.
You can also buy shares of the companies or securities and get something in return (in case of success). Or you can invest some money in the gambling market, which shows fascinating results in recent years and nowadays.
So, you see that it only was the myth that was busted, and everyone is capable of starting investing the money, even having a little sum for doing this.
Factors to consider before starting investing your money
Most people would like to make money while sleeping, and money investment is the right tool to make this dream come true. However, it is highly advisable to consider a few things before starting investing your money to have a positive investing experience.
And the first recommendation in this regard is to make your goals. What are you trying to achieve? What is the primary purpose of investing? While having answers to these questions, it is getting more manageable for you to decide whether money investing is a necessary option for you or not.
Some people wish to have an expensive car, buy an apartment or a house shortly, or simply save money for their retirements. And with the help of the complete puzzle in your mind, it is getting evident whether investing will be worth trying or not.
The second aspect that should be considered is the timeframe of achievement of your first aspect (your goal(s)). And for sure, you know that you want to have that car or house right now, or it is your plan for the next several years. Following this information, it will be evident what type of investment you should take to reach the result.
Evaluate the risk you can take or afford. It is a well-known truth that investing is a risky process – some types of money investment have high chances of making and losing money. For this straightforward reason, it is necessary to evaluate this aspect to ensure what you are ready to do to reach your goals and what risks you can take while reaching the final results. For example, you need to know this, or that amount of money cannot affect your financial situation seriously in terms of failure. And if you are afraid of losing, it is highly recommended to choose a low-risk type of investment.
And the final factor that should be considered is your knowledge in the sphere of investing. There are several types of investment that require in-depth knowledge, and not everyone can handle the investing process properly (with a positive outcome). However, fortunately, some types of investment do not require this sort of knowledge and can be greatly suitable for newbies that have recently joined the investment world.
Investing strategies for beginners
As a first-time investor, your essential goal is to deepen your knowledge in this specific field, and there are a few strategies that every beginner should follow to conquer this field on a step-by-step basis.
Low-risk beginning
Many successful investors advise starting investing for beginners from the point of low risk. This means that you need to use an opportunity of the type of investment that has a lot rate of risks. The perfect option is cash investment.
After your acquaintance with the most harmless way of investing, it is recommended to diversify your current situation and invest in more risky types, like the stock market, mutual funds, or bonds. This diversification allows you to go through all the investment circles and get an excellent experience.
Buy-and-hold strategy
From the name of the strategy, it is getting evident that the essential idea of it lies in the purchase of shares/securities/bonds and keeping these things until the right moment. Ideally, you do not need to sell the investment for a certain period, like two, three, or five years. As practice shows, the value of the purchased investment can rock and reach astronomical heights.
Income investing
The dividends bring a profit. This profit can be significant or not. However, it is worth using the income to generate even more money. For instance, you have regular payouts from stocks or bonds, and it is advisable to use the received money for something else – cash investing or buying the index. Thus, this strategy is focused on the maximum usability of your money to take the maximum advantage of the investing process.
Contrarian investing
This strategy means that you need to analyze the financial market carefully and pay attention to the price of shares/securities/bonds. When you see that the price comes to its historical minimum, your task is to buy as many as possible. So, the principle is as follows: you focus on purchasing for a low price and sell for the higher one.
Usually, the price goes down when a certain region experiences hard times (wartime, recession, or calamity). And it is a perfect moment to start buying the shares/bonds/commodities, etc.
Value investing
This approach to money investing is commonly used by one of the legendary representatives of the financial market Warren Buffet. The idea of the investment lies in purchasing shares of the companies in the correction stage (in terms of their inner values). As an end effect, this strategy allows investors to have a high return.
Top 5 tips for first-time investors
As you get a clear picture of what investment is and what investment looks like, we would like to provide you with practical advice that will not ruin your first-ever investment experience. And it is crucial to go through all of them to be ready for everything that might come.
Define goals
As a beginner in investing, you need to set up your goals. This recommendation means that it is necessary to have a clear idea of what you will achieve. As we mentioned above, your goal can be a purchase of a house or a car, or you want to save some money to have your careless retirement.
In addition, while knowing what you want to get in return, it is getting much easier to decide what type of money investment you need to pick.
Establish a plan
Without a well-designed plan, your chances to meet success are pretty low. Therefore, it is a mandatory measure to develop a plan you will follow. By this, we mean that you need to determine the final destination of where you are going head-on, and this roadmap should include pitstops to see the progress of your work and the rightness of your way.
Understand risks
It is not wondering that your investing trip from point A to point B will be satiated with some dangerous or risky moment. And your essential task is to be ready to meet all of the challenging situations to overcome them with less pressure and effort.
Diversify
Without diversification, the investing journey will be an extremely boring activity. Thus, it would be much better if you could diversify your investing experience with different types of investment. For instance, you can take the type of investment that comes with a low-risk rate and invest some money into another type, like stocks. This diversification will bring its fruits later, and on the other side, you will get a priceless experience.
Do not panic
If something goes wrong, and you do not know how to react or handle the issue, it is necessary to keep calm and not allow panic to make decisions for yourself. Undoubtedly, many situations or troublesome issues cannot be predicted, and people start making irrational decisions. And following this moment, the key to success is not to panic.
What is the best age to start investing money?
As one expression says: “It is never too late.” And this expression can be easily adapted to the financial sector of investment. So this means that it does matter your age because it is never too late to start investing your money and making a profit. However, professional financial analytics and experienced investors recommend not postponing this idea and starting this activity as soon as possible.
These experts give such a piece of advice that lies in the opportunity to get more money from a long-term perspective. For example, you started investing cash in your deposit account ($150 per month) when you were 19 years old. In 40 years, you will have $72 000 plus a determined percentage of the chosen financial institution. And if you start later (under the same circumstances), there is obviously that the final income will be less satisfactory.
For sure, you can try investing in futures or options (the riskiest variation of investment) and make a lot of money in the short-term run. However, it is always better to start earlier to make even more.
Five skills every successful investor should have
To become a successful investor, it is not enough to only have money. To reach this goal, it is necessary to have some skills that will be your assistance. And in this section, we are going to define five skills that every successful investor should have.
Financial literacy
Of course, the very first skill that is required for every investor (a newcomer or an experienced player) is financial literacy. Why is it so important? It is crucial to understand that you will deal with different and complicated things after stepping into the world of investment, and these things include technical terms, complex concepts, hardly-understandable components, etc. To become a financial literate, you need to learn all these things, and the knowledge of financial literacy will help you to become a professional investor who is aware of everything and can understand all of the complicated stuff that they deal with.
Strong fundamental analysis
It is not surprising that every investor should deal with a lot of research, and the skill of fundamental analysis should be included in the list of these skills. While analyzing the market carefully, you will see a clear picture of what is worth investing in and what is not. According to this knowledge, it will be much easier to decide the future perspectives of the companies/markets you want to put your money in.
Emotional discipline
While dealing with the risks, investors experience different emotional situations. Sometimes, it can be happiness from the success or irritation from the fact of losing. And that is why it is highly important to be able to control your emotional swing.
If you cannot be an emotionally-disciplined investor, there is a higher risk of being under emotional control and making your decisions without considering all the aspects. This moment can obviously lead you to failure and money loss.
Lifelong attitude toward learning
Learning is an integral part of every investor, and the skill of a lifelong learning attitude is the greatest skill that every investor can have. It is inevitable to make wrong decisions, and these wrong decisions play a role as lessons, which you need to admit and learn. And if you can learn the lessons in a lifelong perspective, you apparently meet success in investing.
Vision
The last but not least skill required is the capability to have a vision, to have a vision of the next day. For investors, the skill of prediction plays a crucial role because it helps see what the perspective of the company or market they invest in is.
What are the risks of investing?
Dealing with money investing, it is essential to understand that it is impossible to avoid risks. Some types of investments are riskier than others, and some of them are less. So, you need to be ready to face them.
- Systematic risks. This type of risk is one of the most dangerous because there is no way to avoid it while trying to diversify your investing experience. A good example of systematic risk was a global financial crisis that affected all types of investments.
- Non-systematic risks. In contrast to the systematic risks, this type affects a small part of the financial market – a certain company or a specific segment.
- Liquidity risks. When the number of sellers is bigger than the number of buyers, it is getting complicated to make a financially beneficial deal. So, this moment clearly explains the risks of liquidity in the market.
- Inflation risks. From the name of this risk, you may assume that this type of risk refers to the process of inflation in the global financial market or specific regions.
Besides these types of risk, there is a classification of types of investments by the degree of risk (from low risk to high risk). In the pyramid mentioned below, you will get to know what type of investment will be suitable for you and your purposes in terms of the level of risk.
Advantages and disadvantages of investment
Money investing is an exciting and risky activity that has both positive and negative sides. And it is the right moment to sum up everything and see what is covered under the money-investing processes.
| Pros | Cons |
| An opportunity to reach financial independence; | Some types of investing assume high risks of money loss; |
| Successfully invested money can guarantee a bright future; | High expense ratio; |
| A chance to stay ahead of inflation; | High volatility. |
| Save on taxes; | |
| Early retirement. |
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