Lower interest rates and the increasing cost-of-living mean savings accounts aren’t what they used to be. Over time, the money in your savings fund can effectively reduce in value.
If you want a reliable way to grow your savings – no matter how small you start – investing in the stock market is worth a look.
Investing for Beginners
Banks these days are offering low interest rates for savings account compared to previous decades. With the rising cost-of-living, it means the dollars in your account are worth less each day. Investing in stocks is the best way to get ahead financially, but it can be daunting at first
Investing in stocks will not make you a millionaire overnight, but when done well it is a reliable way to keep your money building up over time. Our guide to investing for beginners will walk you through the options and explain their relative advantages. Read on to get started today!
How Does Investing Work?
You can invest in property, art, collectibles, or in a small business. These options can work for those with the expertise. Here, we are focussing on investing in stock or bonds, as we think it is the best start to investing for beginners.
When you buy common business stocks, you are essentially buying a fraction of a business. That means you benefit from the profit or loss that company makes. If you invest in safe-bet equities (shares), its value increases in line with the money the company makes day-to-day. This means you avoid the cost-of-living issue that kills money in savings accounts.
You can buy shares, bonds, or mutual funds. Stocks are a reliable option to grow your wealth over time, and can even open up new borrowing options to you in the future such as StockLoan Solutions. Let’s take a look at each of your investment options in turn.
Shares / Common Stocks
There are a lot of options when it comes to investing for beginners. If you are at an early stage in your career, common stocks are advisable as you have the time to tolerate market movements. You can buy directly from a company through a virtual or physical broker, or you can sign up to stock schemes such as mutual funds, ETFs or REITs, which we will explain in just a moment.
At its most basic, the more successful a company, the more in-demand its shares are, and therefore the higher their value. As a company’s profit-making or viability is in question, the less demand there is for their shares (as shareholders sell up), so the cheaper they are. In investing for beginners, the most sage advice is to look for companies that are temporarily under-valued, but with a strong likelihood of increasing in value over many years.
If you buy cheaper shares, there is less risk of loss and greater opportunity to benefit. You should buy shares that are safe-best – such as health, aged-care, diversified real estate funds and alike rather than start-up tech firms. Our advice is to ‘set-and-forget’ your investment account and avoid selling at every move in the market.
If you can hold your courage, your funds should increase slowly over time. This might include many market ups-and-downs, but on the whole, at the end of a decade, your account should be firming up nicely.
Bonds / Fixed-Income Securities
If you are in or approaching retirement, or want a more prudent option in investing for beginners, bonds might be your best bet. Bonds are fixed-income securities. You lend money to the issuer of the bond, and in return, you get interest on the income it generates.
Bonds are created to give you a steady income source. They are usually more reliable than stocks, but also less likely to give quick or high returns. If you are an older investor with less interest in volatile investments, its time to take a look at bonds.
Exchange-Traded Funds and Mutual Funds
Our advice to those researching investing for beginners is to consider an exchange-traded fund (ETF) or mutual fund. As you start out in the investment market, there is a bamboozling amount of information to get your head around: price to earnings ratio (p/e ratio), bull vs bear markets, market risk, and the list goes on. One way to avoid wasting so much time researching (and risking your money) on individual company equities, is to sign up to an ETF or mutual fund.
These investment options pool the money of a group of investors across a range of shares chosen by the EFT or mutual fund managers. They can be a slightly more expensive option of investing for beginners, but what your extra money is buying is lower risk via greater diversification and professional market insight.
ETFs and mutual funds option index themselves to a given index. As an example, they might buy every stock on the S&P 500 so as the index increases, so do your stock. Other options could focus on green/eco stocks, financial stocks. The downside of this option is having no choice or control over which companies you invest in.
Real Estate Investment Trusts (REITs) are a kind of ETF that focuses only on real estate equities. This is a great way to invest in real estate without the risk of pegging your dollar on a single property – and for much less capital starting out!
Ready to Invest – How Do I Fund it?
You’ve now got a good idea about investing for beginners. We’ve given you lots of ideas to start, and you can begin investing in any of them with as little as $500 or $1,000. You could set an amount to come out of your working wage each week – say 10%. Then, each time it gets to a sizeable amount, you invest it.
You can use your growing investment dollars to buy bonds, stocks, or ETFs. You could try investing in each of these options to see which works best for you, and to diversify your investment portfolio.
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