How To Begin Investing?
We are often told about the the importance of savings: saving for rainy
days, saving for retirement, saving for your next big purchase. A common number
that is often thrown around is ten percent of your monthly net income. However,
what are we to do with the savings once we put them aside?
There is a big
difference between building wealth and just plain saving money. Saving a
certain percentage of your income monthly will add up to a good nest egg over
time, but if you invest those savings you can build a sizable nest egg. Let
your money do the work for you by earning more in interest than what you
contribute to it each month. This is how long-term wealth is truly built.
Imagine there
is a new property launch in KL, and you are wondering if you should bite the bullet and start
investing. However, to begin investing in something, you need to have ample
knowledge and preparation. Here, we have compiled a few tips for you to start
you on your investment journey.
Understand Investments Before You Invest
Taking the
first step from normal savings to investing may be intimidating, but not
impossible. There is a myriad of different investment options to choose from,
ranging from stocks and bonds to real estate. With all these options available,
many people think too much, or even worse too little, before making any
investments. The key however, is to understand the investment vehicle before
you get behind the wheel. You should never invest in anything that you don’t
fully understand.
For example, it
is difficult to know which is the better option: individual stocks, index funds
or mutual funds. In this case, individual stocks are stocks of a single
company. Mutual funds are a basket of stocks, bonds and securities that employ
stock pickers with the goal of beating investment returns of a related
benchmark index (in other words, the market’s performance). Index funds are the
same basket of investments that are automated to track an index (by matching
the investment returns of a benchmark stock market index). The difference
in mutual and index funds being that the first is actively managed while the second is
passively managed. If you like to be move involved, then handpicking individual
stocks would be your best choice. However, if you aim to have a more
diversified portfolio, a mutual or index fund may be the safer way to invest.
Thus, by understanding the differences between all three, you chose the one
that best fits your investment strategy and goal.
Engage The Services Of A Financial Planner
If you do not
enjoy the process of investment research, or do not understand many of the
financial concepts and terms used, or are just plain lazy, you can employ the
services of someone else to figure these things out for you. A financial
planner will assess every aspect of your financial
life, which includes savings, investments, insurance, taxes, retirement and
estate planning. They can help you develop a detailed investment strategy, or a
financial plan, that meets all your financial goals. Investment advisors on the
other hand, will help you understand the different investment strategies and options
available, explain the risks associated with each one and recommend suitable
investments. Most financial planners are also investment advisors, but not
reverse may not always be the case.
However, before
you make any hirings, you need to be know a few things. You should know exactly
what are the services that you need; what are the services that the
professional can deliver to you, whether there are any limitations on their
recommendations; what are the exact services that you will be paying for; how
much these services are going to cost; and how the professional will be paid.
Some advisors may be fee-only, while others may be commission-based.
Set Feasible Investing Goals
As with any
plan and any endeavour, it helps to have clear goals in mind. Once you have a
goal, be it financial independence or early retirement, you can develop your financial plans and
strategies towards achieving your goal. It helps to set both short-term and
long-term goals. Short-term goals, which can be monthly or bi-monthly, can help
you keep track of your progress and cash flow. With short-term goals in mind,
you can calculate how much you can put into investments each month. It also
helps you to see how far you are dipping into your savings each month to
finance these investments.
Have A Sound Financial Plan
Having a proper
financial plan is the key to success in any investment vehicle. You should
however, be debt free before you start any investing. Think about it, the
amount you pay in interest on your debt is usually more than what you will earn
on your investments. So, settle all of your debts before thinking of starting
investing. Some investors however, use debt to finance their investments. But
keep in mind that financing investments with debt carries high risk.
You should have
different accounts for your different financial goals, such as savings,
investments, as well as emergency funds. You should set aside a safe amount in
emergency funds. You can use this as a fund pool for any unexpected and
unplanned expenses, such as home repairs.
Save Before You Invest
Saving money
should always come before investing money. Think of your savings as the
foundation upon which your financial house is built. The reason behind this is
simple. Your savings is the pool that will provide you with the capital you
need to feed and finance your investments. Imagine this, when the economy
experiences a downturn, and you have invested all your savings, you’ll likely
be forced to sell you investments at a loss when you require the cash. This is
not a plan for building long-term wealth. Only after you have a safe foundation
of savings and insurance, should you begin your investment journey. These
strategies will help you build long-term wealth and retire comfortably.
