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How To Begin Investing?

3/12/2018 11:09:00 pm

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.

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