Investing is one of the best things you can do for your money, but taking the plunge into the world of investments can be a daunting one, especially if you don’t know much about it.
The first step to investing well is doing the research, which means you’re basically halfway there. Almost. There’s still a bit to know before you buy your first share. Luckily for you, one of the greatest advantages young investors have is time.
Here’s how to invest for the first time.
Pay off all of your bad debt.
Are you still paying off credit card debt? Then this is a pretty indication you’re not ready for investing.
Bad debt, such as credit card debt, has high interest rates which means the best thing you can do for your money right now is to cut short the time you have to pay this high interest – so pay off your debt before you throw your hat in the investing ring.
Put some cash aside for an emergency fund.
Have you got three-to-six months worth of living expenses stored in an easy-to-access account?
Then you’re one step closer to investing. Having this cash in easy reach means you’re prepared for unforeseen circumstances that require you to fork out a pretty penny or two. When you invest, it can sometimes take a few days to access your money, however emergencies, like vet bills, can require you to pay up immediately. Need help building your emergency fund? You can learn how to do it here.
Make room in your budget.
Investing can have an even greater impact on your wealth if you make regular contributions to your investment portfolio, thanks to the power of compounding.
Making room in your budget for regular contributions means you’re also preventing yourself from overspending, so it’s a win win! Having trouble freeing up some cash? Here are 10 things to cut from your budget right now.
Figure out which form of investment is best for you.
There are a lot of investment options out there, including shares, managed funds, property, bonds etc. Even within these investment options there are many different choices, each with their own complexities and considerations. This a lot of information to process at the start.
A good investment portfolio should consider your risk appetite, be personalised to you, should be well diversified and not contain risks you don’t understand.
Young people aren’t alone in feeling like having a well-diversified investment portfolio is a bit out of reach. At this stage in your life you’re probably focusing on building your career and establishing yourself in your work industry, and you’re not alone.
A lot of young people put off investing because they feel they don’t have the time to track the market and buy and sell their own stocks. To start investing, this isn’t your only option. You can consider getting someone else to manage your investment for you.
Exchange Traded Funds (ETFs) are a type of investment that are particularly popular because of their low fees, flexibility and ability to offer diversification. They track an asset or market index (e.g. ASX200, the Australian share index).
At Clover, we’re advocates for low-fee, index-based investing using exchange traded funds. ETFs are a great way to facilitate this type of investing, and we’re proud to offer ETFs as the basis for all of our investment recommendations.
When it comes to investing you can either choose to set up a trading account with a stock broker (most major banks offer this service) or you can have your investments managed by a broker or a robo-adviser that can create a personalised portfolio for you, monitor it regularly and reinvest dividends.
Handling your own investments may save you management fees but you will need to ensure that you do proper research in coming up with your portfolio and monitor it accordingly, which can really eat into your down time in the long run.
If you don’t have the knowledge or time to manage your own investment portfolio or would just feel more comfortable having your personalised investment plan built and managed by a trusted investment company, like Clover, then you can get started with your free investment plan today.
Also published on Medium.