Have you wondered how you can start a successful investment? You are not alone in this as many people find it hard to start investing, primarily due to the many bills they have to pay. Rent, payment of utilities, debts and other daily expenses make it hard for many people to start investing. Therefore, to start investing, one must have an elaborate plan to guide the process. One skill you need to overcome the burden of the many bills at hand is understanding how to budget your monthly bills. After putting aside funds for your monthly bills and emergency, you will have an opportunity to start investing for your future. Some of the challenges people face when it comes to investing is what kind of project to invest in and how much. Therefore, this is a guide on how to start investing.
Start Investing When You are Still a Youth
Most youths are not aware of the importance of coming up with an investment plan as early as possible in life. The importance of this is that by the time you are a grown-up, your money will have earned interest and as a result, you will be benefitting from the compound interest earned on your investment. Over time, the capital you have invested will grow from which you will start ripping the benefits. Despite the many challenges that come with investing, the advantage of investing early is that you will have enough time to watch over the challenges. By the time you will be 40 years, you will have mastered the art of stock market investment; thus, you will have avoided the primary challenge people face when they start investing late.
Determine the Amount You Need to Invest
Before you start investing, you have an investment goal in mind and the duration over which you expect to achieve the goal. These two investment aspects will guide you on how to determine the amount you should invest. People have different investment goals, but the common one is retirement. Having a retirement package is therefore essential as this will guide you on how much to be investing based on your expected retirement age. You will have to keep saving for retirement so that by the time you attain your retirement age, you have enough funds to keep you going. Generally, it would help if you aimed at investing between 10% to 15% of your annual income for retirement. However, you can calculate your retirement goal with the aid of your employer and or family to guide your investment plan.
Create an Investment Account
It is not a must for one to have a 401(k)-investment account. You can open a personal retirement account in which you can be saving your money. However, some people want to invest for other purposes rather than retirement. In such a case, you should consider investing in different accounts as opposed to retirement accounts as these have conditions on when you can take the money. The best approach for this is to choose a taxable brokerage account as this allows you to withdraw money at any time.
It is not a must for you to have a vast sum of money to start investing. With the right mindset and the right people at your disposal for guidance, you can start investing with as little as $1,000 (Ksh. 100,000) and make progress. Many stock markets brokers do not have minimum requirements for one to start investing with them. Therefore, this is an advantage for people who may have limited funds but are willing to start investing. For this reason, you consider starting investing as soon as possible.
Decide on an Investment Option
Deciding what to invest in poses another challenge to many people. Whether you are investing is a standard investment account or a retirement plan sponsored by your employee, choosing what to invest in is a crucial activity. To do this, you should conduct extensive research to understand what each investment option is and what risks it carries. If you are a starter, some of the options you might consider are as follows:
This refers to a collection of investments that work together. The benefit of mutual funds is that if you decide to invest with it, you will not have to pick individual bonds and stocks; instead, you will purchase more investment in one collection. Due to the collection of many investment packages in one, this form of investment is less risk as compared to individual bond or stocks. Therefore, if you are focused on ensuring that your funds are in a much less risky investment, then you should consider mutual funds. Moreover, as a starter, you need somewhere, you will be sure that your money is safe and growing. For these reasons, mutual funds are an excellent point to start.
When it comes to a bond, this is a loan you give to a government, an institution or company under an agreement that it will repay the money after a given period. In turn, you will earn interest proportional to the agreed payment period. As compared to stocks, bonds are somehow less risky as you are assured of the time to expect your money. Additionally, based on the agreement and the interest rate, you are assured of the amount to be paid back. However, the disadvantage is that they earn lower long-term returns. As a result, you should not expect to put much of your investment in bonds as what you get as interest is very minimal.
Stock or equity is an ownership share in a given company. As a share, they are purchased at different levels, with values ranging from a single-digit to some thousand units based on the regulations of the company. However, to be on the safer side, I advise that you buy stocks through mutual funds due to low risk.
Choose a Strategy to Guide Your Investment
Decide on a strategy that will be the backbone of your investment. When picking this strategy, you should be informed by the reason as to why you want to invest, the amount you need to attain these reasons/goals and the time frame needed to achieve your investment goal. For instance, if you have long-term goals that can take 25 years like that of retirement, then you can invest through stocks. However, due to the issue of the risks associated with stocks, you can invest with a low-risk approach of mutual funds. On the contrary, if you are investing for short-term goals, for example, you will need the money in less than ten years, then you should not invest in stocks. You would instead invest in an online savings account, low-risk investment portfolio or money management account. Some of the short-term investment options are as follows:
|Risk & Reward|
|Less than 4|
|1. Cash Management Account|
2. Online Savings Account
3. Money Market Funds
|Low Risk and Reward. The approach is associated with a potential return of about 0.5% which is better compared to that of banks|
|From 5 to|
|1. Money Market Mutual|
2. Short-Term Bonds Fund
|It has a moderate risk with a low to medium reward. 1% to 2% potential return based on the type of mutual fund.|
|7 to 10 Years||1. Peer-to-Peer loans.|
2. Bank Certificates of Deposit (CDS).
|CDs have low risks; P2P loans have moderate risks (which can be reduced through loans selection) The approach is associated with Medium to high reward.|
With this detailed illustration, we at prolatest.com hope that you will take an initiative to start investing for your future relying on the tips we have provided. All the best.