By Brian McKay
So you’ve been working hard and now have a decent sized pot of savings, and you’ve decided that you want to invest it to gain some extra income or give yourself a nice nest egg for retirement. Excellent news. But as a beginner, you’re flooded choice and are not sure where to start or how much to invest. You’ve read so many blogs and articles, but they all seem to be talking about investing sums that seem a bit out of your price bracket. Here are three things to consider before you make your first investment that should simplify the process a little bit for you. (Source)
Do You Know What You’re Doing?
This isn’t a question designed to put you off, but it is a question you should answer honestly to yourself. Some people just aren’t financially savvy, and that’s fine. Knowing where your weaknesses are and seeking help is an important skill to have. Hiring the skills of a financial planner may seem like a good idea then. However, most companies will not take on any clients with small investment portfolios, and they may charge a lot for their services. We trust technology with a lot in our lives, why not trust it to advise us? Some of the best robo-advisors are completely free, and most are considerably cheaper than the human alternative. There are also books and websites dedicated to helping you understand the market and how to increase the chances of your investment growing.
Where Are You Going To Invest?
There are a staggeringly large amount of options when it comes to this decision. Should you invest all your money in one place? Or should you invest in several places? How many is enough, and how much should I invest into each company? You’ll have heard people talking about having a ‘diverse portfolio’, and all this means is that they don’t have all their eggs in one basket. In order to do this effectively, you will need to do a lot of research. It also helps to have a sizeable investment in each individual company. So what happens if you only have a few thousand to invest, not tens or even hundreds of thousands? If that’s the case, it might be worth investing somewhere that has done the ‘diversifying’ for you. You can buy shares in holdings companies that have ownership, or a controlling share, in many businesses across multiple markets. This way, if any of the businesses it owns fail for any reason, the holding company is safe due to its diverse business model, and so is your investment.
What Will You Do With Your Profits?
Now that you’ve decided how to invest, you should consider what you’re going to do when that investment starts to grow. You could take your profit and initial outlay to reinvest it elsewhere, you could keep it invested in that business and treat yourself with any dividends it pays you, or you could reinvest those dividends right back into the company using a DRIP.
These three questions should have given you plenty to think about, and hopefully, you’re a little more sure about how you’re going to break into the world of investing. Whatever you do, remember to do plenty of research and invest wisely.