Investing 101: A Guide For Beginners

Making investments can be one of the trickier notions in personal finance. But it's also one of the most important things you can do to become financially independent and build your wealth and your legacy. It might seem hard to start, but knowing the basics can help you feel more confident and at ease.

Where to Start

Once you know what you want, you can dive in, either with the help of an expert like a financial planner or by yourself. Here are some tips to help you get started and feel more confident as you explore the investments that will suit you and where you want to end up. 

1. Decide on your goals for investing

Before you open an account and start looking at your investment choices, you should think about what your main goals are. Do you want to spend for the long term, or do you want your portfolio to make money online for you?  By knowing this, you will be able to choose from fewer investments and make the process of investing much easier.

2. Choose your financial vehicle 

For those who want to build their wealth more personally, a brokerage account is the best place to begin. You can purchase and sell mutual funds, stocks, and ETFs through a brokerage account. 

New investors often make the common error of assuming that opening an account with a brokerage firm and depositing funds is an investment. The final thing you have to do in order to complete the process is make a purchase. 

3. Figure out how much you want to invest

Your investment goal and the time you have to reach it will help you decide your amount. Each investment account may only allow you to deposit a certain amount of money each time. For example, a good amount to set aside for a retirement fund is 15% of your annual income. 

Many people, however, are living paycheck to paycheck, so this percentage may seem unattainable. If that is the case, start small, even if it’s only 1 or 2%. Your money will still grow.

4. Ask yourself what type of investor you are

No tried and tested method of investing will suit everyone. It depends on how much risk you are willing to take and how much money you have. Investing can be broken down into two main groups: short-term investing (also called trading) and long-term investing.  

When you invest for a short time, you might be able to supplement your income with money from buying and selling your investments. But the market can change on a dime and sudden news can affect an investment in the short term, so it can be hard and risky to make consistent profits. 

Long-term investing, on the other hand, offers the advantage of giving you additional time for interest to compound and greater flexibility when the market goes through periods of volatility. One of the downsides of long-term investing is that it can be challenging to catch up with your goals if you've postponed your investing efforts. 

5. Evaluate your level of risk tolerance 

Understanding risk tolerance is crucial for investors, as it determines their willingness to take on risk in pursuit of potential higher returns. It also determines which assets to include in your portfolio.  

When discussing risk, new investors should be aware of a method called speculating. It may be easy to assume it is similar to gambling due to the risky and uncertain conditions involved in both, but it is not. 

Gambling vs. Speculation

Gambling and speculative investing do indeed have a few things in common, however. There is a degree of risk and uncertainty, as well as the potential for high returns. They also, to a degree, do not have a fundamental analysis involved in the decision process, and there is also a chance that people who enjoy risk-taking could become addicted to these high-risk ventures. 

In terms of differences, when you gamble, you put money on an event or game whose outcome you don't know in the hopes of making a profit. On the other hand, speculation is when you take a calculated risk with an unknown result. 

If you are someone who enjoys a thrill that can be entertaining, there are ways to play that don’t involve as much risk as speculative investing or traditional gambling. Sweepstakes casinos offer the chance to win cash prizes or other rewards without breaking any laws if you’re from a region where gambling online has not been made legal as yet. 

This is because online sweepstakes casinos use digital currency systems that do not translate to real-world money, so you are playing casino games, essentially, for free. You can choose to purchase these ‘gold coins’ if you wish to, but it’s not necessary. When you have accumulated enough, you can trade it in for cash prizes. 

Speculation is also for those who enjoy taking a risk, and it involves expecting a good return on your investment, even though you might lose money in the end. People who gamble should anticipate losing money from the outset, even if they strike it lucky and win. Also, wagering should always be for entertainment and never to make money that you need. 

Conclusion

As you build your portfolio, research what common investments you can start with that are low-risk. You should also find out the tax implications and how best you can make it work for you. It may seem overwhelming at first, but once you have taken the leap, you will learn what works for you and what doesn’t.