Investing doesn\u2019t have to be daunting. Once you strip away the jargon and wrap your head around a few key concepts, it\u2019s actually quite easy. So if you\u2019re a complete novice when it comes to investing in stocks or anything else, this guide will help you understand the basics and show you how to start investing.<\/p>
Investing is buying assets like stocks or property in the hope that they will increase in value over time. Buy an asset now, then make a profit in the future when you sell it at a higher price\u2014that\u2019s the strategy in a nutshell.<\/p>
Some investments also provide an ongoing source of income while you own them. For example, you can collect rent from an investment property, or receive regular dividend payments from stocks you own.<\/p>
Investing is different to saving, which is when you tuck your cash away safe and sound in a bank account. Saving comes with less risk than investing, but it doesn\u2019t offer the same potential for high returns. Saving is also better suited to short-term financial goals, as the money is easily accessible whenever you need it.<\/p>
You want to start investing, but are you financially ready? Could the money you plan to invest be put to a better use instead?<\/p>
There are two key things you should do before buying your first investment:<\/p>
Once you\u2019ve got your finances in shape, you\u2019re ready to get started.<\/p>
Follow these eight steps to learn how to start investing:<\/p>
Why do you want to start investing? What do you want to achieve, and in what time frame do you want to achieve it?<\/p>
Maybe you want enough money to retire early. Maybe you want to build wealth to pass on to your children. Maybe you want investments that can provide a source of passive income. Or maybe you just want the potential for higher returns than you can get from a savings account.<\/p>
Whatever the case may be, now is the time to set clear investment goals. And remember: these goals may change over time, so don\u2019t be afraid to revisit them regularly.<\/p>
Investing comes with risk. The higher the risk, the higher the potential reward\u2014but the potential losses are greater too. For example, bonds and GICs are low-risk investments, while stocks come with a higher level of risk.<\/p>
So ask yourself: How much risk am I willing to take on? Will you be happy for steady returns with minimal risk, or do you want to target maximum profits and try to outperform the market?<\/p>
Your financial goals and investment timeframe will impact your risk tolerance. If you\u2019re investing with the aim of buying a house in a few years\u2019 time, for example, you probably won\u2019t have the flexibility to ride out a short-term market downturn.<\/p>
If that\u2019s the case, a low-risk investment that provides a guaranteed return will be a better choice.<\/p>
But if you\u2019re investing long-term to fund a comfortable retirement, you\u2019ll probably be able to risk some short-term losses for higher long-term returns.<\/p>