How to start your Investment Journey?
A Beginners Guide
Investing can be easy
Everyone should invest! You can build up capital and benefit from higher potential returns than you would get from a savings account. Unfortunately, it is difficult not to get lost in the jungle of financial information. Having a good overview of the market and the right strategy to reach your goals will make things exciting again. If you are wondering what are the two crucial aspects to consider when investing and how you start, keep on reading!
Think of investing as a journey
When planning a trip you align it to your personal needs, such as your budget and time frame. The next steps are choosing your destination and how to get there. So, what comes last? Action! You leave the house and execute your plan. With this analogy, we don’t want to simply visualise a rather complex topic in an understandable manner. Our goal is to provide you with a holistic guide for your investment journey!
Consider:
Budget and time frame
What is your end destination
Take action
What do you have to bring to the table?
Well, the only things you’ll need are basically time and a certain amount of money. The most crucial part is time. When it comes to investing, the more time and patience you have the better. The sooner you start the more time your capital has to grow (compound interest) and weather temporary market turmoils. However, that does not mean that it is ever too late to start investing.
Now let’s talk about the difficult part – finding the money.
We’ll keep it short.
Budget first. What matters is to understand how much money you have left after you cover all your living expenses. Start with an amount you don’t need for your daily living and be ready to lose it. Consider this amount as learning money. Some providers enable investing from as little as 1$.
You may start saving a certain amount per month for investing. Your savings rate depends on your income, costs for living, planned large purchases etc.
Where is the journey heading?
That depends on your investment goals and which strategy you want to follow to achieve them. So let’s have a look at some cornerstones of your investment journey.
Your goal
When you’re planning a trip, you want to decide on a destination first. This is your goal. Think about the goal you want to achieve with investing. Maybe you dream of buying a house or want to accumulate a capital buffer for retirement. Perhaps you wish to generate a passive income, or you simply save for a perk. Whatever it is that drives you, keep it in mind and align your strategy with it.
Your Strategy
You know where you’re heading, but not how to get there? Well, set your time frame first. Do you plan on investing for short-term gains or long-term growth? How engaged do you want to be in the process?
Make sure to answer those questions as a foundation for your investment strategy. Depending on your time frame and if you select active or passive investing, you end up investing in different instruments. What you ultimately end up investing in also depends on your risk appetite and the companies, sectors or markets you appreciate. Each investment has distinctive characteristics.
Let’s say you are ready to take moderate risk. Then, a long-term strategy with lower-risk investments such as bonds or dividend stocks of well-established companies would probably suit you better than day-trading penny stocks or cryptos.
It’s about taking a structured approach to your journey and sticking to your strategy.
How to get there?
What are the next steps to finally start investing? Choose the right platform! Easier said than done as there is no perfect platform, but you can compare various providers and find the one that suits you best. First, depending if you’ve decided to invest actively or passively, you either choose a broker/trading platform or a Robo-advisor. Robo-advisors are algorithm-based services that invest automatically, based on your investment strategy and goals.
As for both of them, make sure to compare:
Fees
One of the most popular quotes from Milton Friedman is: “there is no such thing as a free lunch”. Applied to your investment journey, remember that you won’t get brokerage services for free. But, different providers have different cost structures and therefore are more or less suitable for you. This depends on your trading style (f.e. order frequency) and the amount of money invested. Some trading platforms do offer free accounts, but be aware that these platforms often make money through spreads on the instruments they offer. So, make sure to check the fee structure and if none apply, find out how else they make money.
Minimum Amount
The Minimum Amount is the ticket to your investment journey. Luckily there is no longer a minimum amount you need to have to start investing, at least with many brokers. You can start investing with as little as 1$ per trade when buying fractional shares, funds and ETFs through your brokerage account.
Usability
Last but not least, make sure to check the hygiene factors. The what? A feature that will make you unhappy if it is not provided. Hygiene factors include how user-friendly the platform is, do they offer a mobile app, and what is their customer service like. And what additional benefits do they provide you with? Here are some examples: learning material, analysis, investment selection tools, etc.
These characteristics are crucial to ensure that you’re getting the best value for your money. So, compare providers and choose the one whose offer suits your preferences best.
You’re here – what’s next?
Still, reading? Good to hear!
Now, you know what you need to start, you know where you want to go and even, how to get there. So, what comes last?
Action!
To keep it short – execute, monitor and adjust over time. You have all the information. Write down your strategy if needed, just to make sure you don’t lose sight of it. Depending on your approach, search for your preferred investments and execute your first order.
Monitor your portfolio by checking it once in a while. You should be confident about investing, although it probably takes some time to get there. This is why it is important to stick to one’s risk tolerance. Do not panic as soon as markets are having a rough time – remember, you are in for a previously defined time horizon. A helpful way to develop this confidence is practice.
Simulate your investments before going all in with your own money. This is what we from UMushroom are here for. You can create your own portfolio, add virtual cash and select your favourite investments. Why? This gives you hands-on experience of how markets work and provides you with feedback on your investment strategy while having the advantage of a safe investing environment.
Key Take Away
We’ve reached the end of another learning session, but what should you take away from all of this? Investing is a complex topic so think of it as a journey. The fundamentals you need to start your journey are time and money but don’t worry, you don’t need a lot of it. As with everything in life, always keep your goal in mind, especially when investing. Based on your goals, think about how you would like to reach them and how much risk you’re willing to take on your journey. This forms the core of your investment strategy. When you have the ‘what’ and ‘why’, think about the ‘how’. You can invest actively or choose someone else to do it for you. Either way, make sure to compare different providers and choose the one that suits you best. When you get everything in place, you’re good to go, though it’s not a bad idea to start with a simulation account first to get the hang of it.
Fun fact
You’ve probably already realised that we like Warren Buffet, so here is another short fun fact for you. Warren Buffett earned around 94% of his wealth after he turned 60. Sounds amazing right? We do know that this is a special case but the message remains relevant nonetheless – it’s never too late to start investing!
Your time to shine
But enough with the theory for now. Got everything in place? Start your investment journey. You can use UMushroom to put your strategy into practice. Create portfolios and add your favourite stocks, ETFs, funds and cryptos from our investment universe to see how you’d do!
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Sources:
https://www.ubs.com/ch/en/private/investments/advice/why-invest.html
https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp
