So, you want to invest? But still unsure where to start, or how to stay confident and in control? Preparing yourself doesn't need to take a long time, it needs to take the right time. Investing Guides has listed all stages of someone who is thinking 'how do I start investing'.
Should you be unaware of how psychology impacts investing, then it is recommended to read doubts to start investing first.
Simply read through the below, or pick from the table of content should you already be ahead of the curve and well on your way to start investing.
Time to complete 1 hour.
How to start investing in 7 easy steps
- Understand investing as a concept
- Make an investing plan
Set your investing goal(s), establish your time horizon, determine how much money to invest and decide on your risk (profile).
- Pick an investing method
Decide if you wish to invest yourself, or make use of an asset management solution.
- Decide on which products to invest in
Stocks and ETF, mutual funds or margin.
- Compare investing accounts
Before choosing a broker, review a broker's costs & commissions, investing requirements, trading platform and usability, product offering and investing opportunities.
- Open your own investing account
If still in doubt, open demo accounts to learn more without providing much.
- Make your first investment
Consider the amount to start with and possibly make use of a limit order.
- Keep learning whilst investing
Use InvestingGuides, broker and book reviews and useful links to your advantage on your way to becoming a smart investor.
- Bonus: Avoid these common mistakes
Quick overview of common pitfalls due to lack of time or abundance of enthusiasm.
Investing in a nutshell
In short, financial investment is the process of buying, holding, and selling financial instruments. We go into deeper details if you prefer, on the financial investing definition page.
We specify financial investing as it is possible to invest in all different physical and digital forms from an art painting accumulating value and rarity over time, to an NFT that was just minted on the blockchain.
Let's bring it back a few. Financial investing involves a brokerage account and the stock market. The goal is to grow your money to for example reach an earlier retirement (FIRE), or counteract inflation or negative interests charged in certain bank accounts.
To reach this goal, let's say financial independence, you can invest yourself periodically, or let a broker or asset manager invest for you. Different types of investors and investing approaches exist, such as dividend investing. But before you feel overwhelmed, simply follow the below's steps, and you will be guided through each decision.
How to start investing? 7 step guide by Investing Guides.
Get started with investing! Follow the below steps and you will be on your way in no time. Investing Guides is here for any questions before, during or after.
Step 1: Make a plan to start investing
Successful investing should not be evaluated on any given day, week or month Sometimes even a year! It's normal to get discouraged after a bad investment experience or a red day at the stock market and think you may have gotten it wrong.
In fact, many people consider the risks to be too great compared to the possible uptake of mental worry. That is unfortunate and, above all, unnecessary. You can weather a failure (or several) on the stock market by making a good plan. This is a very important step, and should not be underestimated. With the steps below you make a plan to start investing.
Set your investing goal
With the current low or even negative interest on savings, most people have, or are, looking to grow their money elsewhere. But returns only have a personal value, if they realize a need or wish. Does it help you to buy a dream house, retire early or perhaps support a passive income strategy to supplement your salary monthly for more travel?
By working towards a concrete investment goal, you make it easier on yourself. This gives direction to your choices as well as a possible endpoint.
Decide on your investing time horizon
With the investing goal as an endpoint, you might find it easier to set the timeframe too. Many people invest until they need or want to retire or because of a life-changing purchase in the future.
Time or lack thereof is one of the most important factors that determine your success. The longer you invest, the greater the chance of a positive result as well as the higher potential return, assuming you stick to your investment strategy.
On the flip side, time also ensures that you can make up for any losses. Do you need the money for a major expense in 'only' a few years? Then the risk is not worth the possible gain. If your portfolio falls sharply in value in that short period of time, there is little chance that you will end your investment adventure on a positive note.
You should only invest in the stock market with the part of your assets that you can afford to lose and/or won't need for the long term. This allow it to grow uninterrupted.
Pick the amount of money comfortable for you
How much money do you want to invest? This can best be calculated from either your total current savings or as a percentage of your monthly income. Why is this important?
The investment amount is a determining factor as soon as you start looking for a broker to invest with. For example, many brokers use a certain amount as a minimum to open an account and/or place an investment. This does not only differ per brokers but often also per product and exchange. In addition, the costs often (partially) depend on how much money you invest.
Secondly, if you know your willingness to invest, when you start investing in the stock market, you can also make use of periodic investing solutions. You spread your entry moment over a longer period, for example by making a monthly investment. This can either be set up manually or as a reoccurring investment if you choose the same investing instruments consistently.
Guide yourself by choosing a risk 'profile'
Investing in the stock market involves risks. But how much risk is up to you? Often a number of risk profiles are used for simplification, such as defensive, neutral and offensive. The longer the term, the more risk you can take, as the market is expected to correct itself over time. An asset manager or broker can support and advise you on this.
When investing yourself, you choose the products and you, therefore, determine your risk entirely. Are you going to invest yourself and do you see opportunities for a very high return? Then the risk is usually also high. An important rule of thumb is that risk and return go hand in hand.
It is essential to do your own research when investing by yourself. To what capacity, is entirely up to you.
InvestingGuides recommends you review the risk rating attached to an investing instrument and its fundamentals before you start investing.
Step 2: Self-Investing or Asset Management
Now that you have a clear investment plan, it is important to choose the right investment form. How do you want to invest your money? This can have a major impact on whether you achieve your goal. Time and risk are big influencers when considering how to invest.
By now, you should be able to decide on one of two options: outsourcing to an asset manager or investing yourself with a broker. Below, these two forms of investing are explained.
Asset Management investing
For the cautious or time-sensitive beginner, outsourcing is the most obvious. You do not have to make any investment choices yourself and have your money invested by an asset manager/asset Management solution from a broker.
Originally this solution was available to the wealthy setting rather high minimums. Nowadays thanks to automation, competition and increasing transparency, online asset management is becoming more accessible and cheaper.
The asset manager (or Broker) will invest money in a broadly diversified portfolio. Often with thousands of underlying companies and in shares, ETFs, bonds, mutual funds and so on. You choose how much money you want to invest and at how much risk, the asset manager does the rest.
Are you looking for a form of investing or investing that you don't have to worry about as much as possible? Then online asset management is a good choice.
Do you like investing and would you like to spend more time doing it, then you can also invest by yourself. It is important to do so with products that suit your situation and knowledge. You are entirely responsible for the choices you make. You can ask yourself the following questions to find out whether you are suitable to invest in the stock market yourself:
• Do I have sufficient experience and knowledge? InvestingGuides is here to help.
• Do I have enough time and do I want to put that time into it? Consider your personal maximum time for a week to understand your commitment.
• Do I have sufficient insight into the possible risks and expected returns? Exchange product type and the specific instrument will have a risk indicator and fundamentals you can deep dive into.
• Can I make sufficiently rational decisions? Although initially, you will likely say yes, it is consistent investors that are successful.
In the next step, we look at which products you could invest in yourself.
Step 3: Choose which products you want to invest or invest in
Investing in the stock market can be done in many different ways. You can invest in stocks, ETFs, index trackers and many other products. Did you choose to outsource to an asset manager? Then you don't have to worry about this much. The asset manager then makes a portfolio that is as diversified as possible. If you choose to invest in the stock market yourself, you are responsible for this yourself. Below we describe the most popular investment products.
|Shares or ETFs investor||I would like to (learn to) invest on the stock exchange and directly buy the individual, or groups of, companies that I find interesting.||Spreading yourself in shares and other individual products, investing on worldwide stock exchanges. Largest freedom in making your own choice. The highest importance to do your own research.|
|Funds investor||I invest in smaller amounts and look for a solution to build up (periodic) capital without spending a lot of time on it.||There is already diversification within the fund. Self-responsible for selecting the right funds or index funds. Can be recommended to you by the asset manager or broker.|
|Option and CFD investor||I'm experienced and know what I'm doing, or I want to take a gamble.||High risk and unsuitable wealth accumulation. For experienced investors. Even then, very risky.|
There are different forms of listed investments:
Start investing by buying stocks
Most people think of investing in stocks when they think of investing. You invest in individual shares of companies, such as Shell or Facebook. Individual stocks are suitable for people who want to manage their investment portfolio all by themselves.
Equity investors would like to be able to make their own choices in the construction of the portfolio and buy and sell shares themselves. They like to delve into companies to discover interesting investment opportunities. Investing in shares is therefore a time-consuming activity.
Buying stocks is more than just selecting the right ones. As an equity investor, you are also entirely responsible for putting together a broadly diversified portfolio. For more diversification, you can go for a combination with other types of investments. This can be done by investing in bonds, index trackers or investment funds as well.
Start investing by buying mutual fund and indexes
Instead of investing in stocks, fund investors buy mutual funds or index trackers (so-called ETFs). If you choose to invest yourself, investment funds and index funds can be a good way to gain experience whilst reducing risk. You can invest both passively and actively in these products. With investment funds or index funds, you buy a basket of shares in one go.
When investing in funds, you decide the fund, but the fund itself is managed by the fund manager. This makes this form of investing similar to asset management, but there is an important difference. As a fund investor, you are completely responsible for choosing the right funds and putting together a suitable portfolio. You also get no help in choosing the right risk. The freedom is greater, but this also means that the chance of errors is greater than with asset management.
Investing in index trackers has grown in popularity in recent years. Via an index tracker or ETF you invest in an index of shares (or other types of products) in one go. With index investing you can achieve good diversification at low costs. But here too, you are responsible for the choices.
Start investing in margin products
Lastly, it is possible to start 'betting' with or against certain instruments. In order to do so, you need to use margin and a derivative product like an option or CFD (contract for difference).
Although considered an unpopular opinion, InvestingGuides believes these products serve no role in a new investors' portfolio. Hence, consider if you really wish to pursue this much more complicated trader path, or stick to investing for now. About 80% of people lose money with CFDs.
Step 4: Compare investing accounts
When comparing companies (mostly brokers) to start investing, you will notice that there are different types of parties. Within the category of brokers, there are also a number of different types. The main difference is the product offering. The agreement is that with all these parties you choose what you invest in.
The stock broker is the best-known type of broker. There you invest directly on the stock exchange in a wide range of financial instruments. Well-known parties for trading shares or index trackers themselves are IG, Etoro and RobinHood. But many, many more exist. See reviews here.
There are also a number of fund platforms globally. With these parties, you can put together a portfolio yourself to invest in different funds. The investment funds or index trackers you choose are managed for you.
Brokers can be compared on many different elements. Some main categories are:
- Costs & commissions
- Investing requirements
- Trading platform and usability
- Product offering
- Investing opportunities.
Do you want to start investing yourself? Then you can compare brokers here on the parts that you find important. This way you will find the broker that suits you best.
Step 5: Open an investing account
Congratulations if you have made it this far. Many people get stuck in the 'woods' of investing in education, or simply give up prior to choosing where to open an account.
When you start investing for the first time, it seems like a big step, but in practice, it is not that bad. Investing in the stock market is becoming easier and easier for you and it can be done with any amount.
If you still feel doubtful about where to open an investing account, it's best to open several demo accounts. A demo account provides the advantage of experiencing all a real account can provide, without having to provide all your personal data. You also won't be required to use real money, so you can practice with ease (of mind).
Once you are ready for the real thing, you can usually open an account online on the provider's website. You then link the investment account to your own payment account and make your first funding. If preferable, start with a low amount to invest to learn the process. You can always fund more or frequently later when you feel more comfortable.
Step 6: Open your first investing position
A few steps back, you determined which type of products you want to invest in. How exactly buying the products works differs per type of product. Have you opted for index trackers or stocks on the stock exchange? Then look for the relevant products on your broker account.
Sometimes a product can be traded on several exchanges, in that case also select the exchange of your preference. Products on the stock exchange, such as index trackers or shares, are always bought in whole pieces.
Based on the amount you want to invest or invest, you can calculate how many shares you want to buy. When placing the order, it is recommended to use a limit order. You then have control over the maximum price you pay. In principle, products on the stock exchange can always be traded immediately, provided the stock exchange is open.
When you place your first trade, this is in your case an investing position. Assuming you stick to investment products, you can only buy your first position, not sell.
Have you chosen to outsource to an asset manager? Then you don't have to choose the products yourself. The choice of risk profile then determines the ratio of products in which your asset manager composes the portfolio.
With asset management and funds, you can usually decide for yourself how much you invest, without having to take the value of the products into account. Keep in mind that there is often a delay between placing your order and the actual purchase. This can take a few days with asset management or funds.
Step 7: Start investing and keep learning
If you want to be actively involved in investing in the stock market, you will also have to continue to acquire knowledge. There is a lot of useful information on the internet for beginners to learn.
InvestingGuides helps you understand some of the basics, but on top of this the demo accounts at Brokers, investing books, useful links plus academies like IG academy, will help you even further.
Start investing whilst avoiding these pitfalls
Good learning investment is a matter of minimizing mistakes. When investing, every mistake can cost you money. We, therefore, list a number of costly beginner mistakes for you:
• Investing without researching the company
• Investing for too short a term like 6 months
• Deposit your entire amount in one go
• Investing with borrowed money
• Investing in too few products
• Investing in margin products like options, CFDs or leveraged ETFs.
• Emotional decisions
Other useful investing recources
On a final note, consider these website's if you are either ahead on investing or do not feel ready due to a lack of economic & financial background:
KhanAcademy is great in explaining micro and macro economics including how this influences the stock market. And for more complex margin explanations, Youtube is a better medium to show the mechanics.