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FOR STARTERS
The best time to plant a tree was 20 years ago. The second best time is now. – Chinese proverb.
The aforementioned is a Chinese proverb that encourages us, no matter what the endeavor, to start today. This can also be applied to investing. Hence, for someone who is a new to financial investing and has no assets, START NOW to build your wealth. However, it’s important to remember that not one size fits all and that any investment should be matched to your specific goals, income and risk appetite. DO NOT be dissuaded from investing in any asset class because it seems scary, or difficult, rather make an informed decision, remembering that investments can go “UP or DOWN” and that, that’s the risk you take in order to build wealth.
In order to do this, it’s critical to change your MINDSET about money: think about SPENDING your income to GROW your assets, instead of wasting it on superficial material items or television subscriptions that will lose value as soon as you purchase them.
Example: you know how hard it is to save money. But let’s say, over a period of years you’ve saved US$5,000 to buy “the new” flatscreen television. As soon as you buy that new television for US$5,000, the value of it will immediately drop, because it now becomes a “second-hand” item in your possession. Hence, the US$5,000 you’ve spent will drop too, such that if you went to sell the flatscreen, now second-hand, you’d receive less than what you paid for it, resulting in a LOSS. Not a great feeling after you’d spent years saving all that money in the first in stance!
INSTEAD, wouldn’t you prefer to look at an option to POTENTIALLY GROW that hard earned US$5,000 to US$10,000 or more? Whilst there are NO GUARANTEE’S that an investment will “go up in value”, there is more CHANCE that your money will grow through investing vs. the absolute guarantee that your money will DROP if you waste it on material items.
As such, investing, for example, in bonds [safest], property, exchange-traded funds [ETF’s], stock markets, crypto [riskiest] are strong mechanisms to potentially earn money for long-term goals. Obviously, some investments are riskier than others, hence, you need to honest with YOURSELF about what YOUR RISK appetite is and choose accordingly what you want to invest in.
We ALL FEAR that making an investment might lose money, however, nothing ventured NOTHING GAINED, so get over that fear! Apportioning some [NOT ALL] of your disposal income each month to put in stock markets or other assets [ETF’s, crypto etc] could help you, not just BUILD for the future to pay for a vacation, a degree, a vehicle, but GROW that money to have extra assets saved for a rainy day, or MORE CRITICALLY RE-INVESTING that money to grow those assets even further by way of “compounding*” – also see separate post on that concept.
WHAT FINANCIAL ASSETS TO INVEST IN:
When you first begin investing, you obviously want the “biggest bang for your buck”, otherwise known as the best way to get the highest “Return on Investment” [RoI]. However, as mentioned, investments can go UP or DOWN, you just have to “ride it out” and see “down days” as opportunities to BUY more of the investment you’ve made at a cheaper price, so long as there’s not a fundamental, previously unknown issue that’s been unearthed in that investment. The following are some options to consider:
Mutual funds: are a good option for any kind of investor, beginner or seasoned. Having a method that allows you to allocate your funds efficiently based on your goals is key – as it means you’ll maintain a consistent routine to putting money into an investment. If you are a new investor, you can simply begin with a Systemic Investment Plan [SIP], or similar. It allows you to invest a certain amount of earnings every month, where that amount is auto-debited from your account monthly, hence helping you remain committed to your investment strategy. REMEMBER: CONSISTENCY IS KEY!
Stocks/Equities: represent ownership of a company i.e. shares in a company. When you purchase a share of a company it means you own a small percentage of that company. Some of the biggest companies in the world allow you to buy and sell shares in their company. This is can be considered a more risky asset class because of the volatility that is sometimes associated with stock performance. NOTE: The price per share of a company is linked to many factors: the revenues, strategy, growth potential, profit and loss, balance sheet of the company, its management, broader macro trends, geopolitics, and so on. However, stocks also have the potential to yield exceptional returns because of how much their price can move [up or down, if you “SHORT” a stock**] in a given day. As such, investments in this asset class may not be suitable for every investor as they typically require more vigilance and active rebalancing, which can take time.
Exchange traded funds [ETFs]: are primarily a basket of securities that gives you exposure to a certain group of assets, example: equity, debt [treasuries etc], stocks, bonds, commodities, or currencies. An ETF allows you to buy a share of that basket, just like buying shares of a company. ETF’s are traded on a stock exchange and offer the ease of stock trading along with the diversification benefits of mutual funds.
CRYPTO: If you’re new to the world of crypto, figuring out how to buy Bitcoin, Dogecoin, Ethereum, SOLA and other cryptocurrencies can be confusing. However, conceptually, cryptocurrencies are a portrayal of a brand-new decentralization model for money, away from the currencies we use in everyday life, otherwise known as FIAT*** currencies. They also help to combat the monopoly of a currency and free money from control. No government organizations can set the worthiness of a crypto coin or flow, as such, crypto enthusiasts think this makes cryptocurrencies secure and safe. In many parts of the world, traditional banking systems are inadequate or non-existent, leaving people without access to essential financial services like loans, savings accounts and insurance. Cryptocurrencies can provide these services through decentralized applications (DApps) that operate on blockchain**** networks. Some of the most well-known networks or cryptocurrency exchanges, where you can BUY and SELL crypto are Coinbase, Gemini or Binance. These are standard trading platforms that offer user-friendly easy purchase options: just transfer traditional “FIAT***” money from your traditional bank account onto one of these platforms, and then “BUY” whichever crypto coin you want. “Coins” are RISKY and VOLATILE but the REWARDS can BE GREAT, especially if you believe in the overall ethos and re-invest any profits you make, to compound your asset growth.
DIVERSIFICATION: is crucial in any portfolio = NEVER put all your “eggs in one basket, ETF or otherwise!” Investments in foreign equities [US, UK, European, Asia, Japan, Australia, Emerging Markets in Latin America, Middle East or Eastern Europe to Africa], can ALL provide diversification benefits in one’s portfolio, along with the opportunity to hedge currencies.
THINK OF THE POTENTIAL IN FRONT OF YOU AND TAKE ACTION: Investing REQUIRES YOU to do some homework initially. However, once you see your money grow, you’ll gain confidence in this space and be engaged with preserving those gains. Be reminded, that there is an ABUNDANCE of FREE information [like this page] out there to help you get started on your investing journey, so, don’t allow the “fear of not knowing” to get in your way!
YIELD YOUR POWER: to intelligently and efficiently research your options to invest your hard earned money, in order to help you reach your financial goals. As you go along this journey, you’ll discover, through your own trials and tribulations, mistakes and successes, new ways to “grow” and new opportunities reveal themselves to you, that you otherwise never would have thought of. REMEMBER, if you ever feel stuck, have questions or doubts, you are NOT ALONE, just ASK FOR HELP – there are MANY resources available – you just have to LOOK.
So, what are you waiting for?
GLOSSARY:
*Compounding: is a powerful investing concept that involves earning returns on both your original investment and on the returns on that investment. For compounding to work, you need to reinvest your returns back into your account, instead of cashing out and spending any profits.
**SHORT stock: shorting a stock means that you SELL that stock, investing in such a way that you will profit if the value of that stock falls. This is the opposite of a “long” position, where the investor will profit if the value of the asset rises because they have BOUGHT a stock.
***FIAT currency: a government-issued currency that is not backed by a physical commodity like gold or silver, but by the government that issued it. Example, the US dollar is backed by the US government, the UK pound sterling is backed by the UK government.
****Blockchain: is an innovative database technology that is central to virtually all cryptocurrencies. By distributing identical copies of a database across an entire network, blockchain makes it very difficult to hack or cheat the system. While cryptocurrency is the most popular use for blockchain presently, the technology offers the potential to serve a very wide range of applications.