What are the investing basics?
As has been mentioned many times on this website and in numerous other articles, if you want to build real long-term wealth, you will have to start investing, as saving in the traditional sense just won’t do it.
Generally, investing means taking the plunge and investing in the stock market. It can mean investing in other assets, but for this article on investing basics, we shall assume it means buying stocks and shares or equities as they are also called.
Real wealth is built up by investing in good quality companies over the long term, and continually reinvesting any dividends paid, and also adding any spare cash you have frequently, for example on a monthly basis by standing order. This way you can turn original investment sums of circa £10,000 into multi million £ sums over the decades.
This quick guide on investing basics will give you a step-by-step guide to investing money in stocks and shares, and what you need to do and think about to take the next step.
INVESTING BASICS - HOW TO START INVESTING IN STOCKS & SHARES:
1. Make the decision to start investing and then do it.
The biggest decision you will ever need to take about investing is the decision to start in the first place. Many people have procrastinated on such a decision for years if not decades, whilst all that time wasting valuable investment growth opportunity through missed time in the markets. The younger you can start, the more investment time you have to grow your wealth.
2. Decide your investing strategy.
Once you have made the decision to invest, you must then consider your own investment strategy. This simply means what are you planning to invest in from the very broad stocks and shares universe. For example, will you invest directly in individual stocks, or will you choose funds? Will you invest in worldwide companies or just your home turf for example the UK or USA only. Will you consider large or small caps, growth or income stocks, index funds or actively managed? This is an important investing basics decision, and our advice would be to consider them all and diversify widely.
3. Think about how much you can invest
This investing basics item is very personal to each and every one of us, and the answer is of course always different as we have so many different financial positions and demands on our limited incomes. If you can gather up about £100 or more as an initial investment, and then circa £25 per month on an ongoing basis, then you have enough to begin your investing journey. If you have more than this, then so much the better.
4. Research and review investment platform options
Depending on the answers provided to the above questions, you will then need to research investment platforms to find one that matches your investment needs, and does what you require it to do, at a decent cost. No point choosing a platform with a £1000 minimum investment if you only have £100 to begin with.
5. Select an appropriate investment platform for you needs and open it
Once you have made your selection, simply sign up and complete the application process. It shouldn’t take too long, although you may have to provide some personal ID data to fully operate your account both here in the UK and in the USA and elsewhere, due to financial regulations. You may even wish to consider peer to peer investments.
6. Make your stock fund selection
Select the stocks or funds you have decided to invest in from your investment strategy, and ensure you diversify your chosen funds and asset classes as broadly as possible to minimise investment risk.
7. Set up a monthly direct debit to drip feed into your investments
As easy as it sounds. Paying in monthly will help grow your investment over the long term without having to time the markets and your investment decisions.
8. Once all set up, leave to grow
Your investment portfolio should run itself once you have set it up. No need for further involvement unless you want to.
9. Review your portfolio occasionally
You don’t need to monitor the ups and downs of your portfolio on a continuous basis. An annual review is all it really takes, but if you want to, there’s no harm in having a monthly look if you really get the urge. In falling markets, it is best not to look too often!
We hope this investing basics guide has been useful to you, and helps you on the road to financial independence.