A recent survey reveals that over half (55%) of US adults aren’t investing anything. 

The number one reason why Americans give investing a pass is because of the lack of sufficient funds to start investing.

There is this misconception that you need to have a big pile of cash to get started with investing.

But this couldn’t be further from the truth!

You can start investing with as little as $5. The amazing thing about the many online brokerages is that you can buy fractional shares (a portion of a whole share).

This is great news if you believe that you don’t have enough cash on hand to start investing.

Are you new to investing?

Does it scare you a tiny bit?

It’s okay, we all have to start somewhere.

Here’s a short guide that’ll help you make your first investment like a pro!

 

3 Things to consider before investing

  • Develop a working budget. If you don’t know how much money you owe, earn, and spend every month, you’ll never know how much money you can comfortably and consistently invest.
  • Build an emergency fund. You never know how things will unfold, so before you start investing, create an emergency fund. Your emergency resources should be more than enough to cover up to six months of expenses.
  • Pay down high-interest debt. If you have high-interest debt, such as credit card debt or a payday loan, repay it before you start investing. The interest payments on these accounts could quickly eat away your savings.

Recommended Post: How to Budget While Living Paycheck to Paycheck 

7 Steps to start investing like a pro

 

1.   Define your investment goals.

It all starts with understanding your investment goals.

Why do you want to invest?

Are you trying to save money for a down payment, a new car, or a college fund?

Every investor should start by defining his or her investment goals.

Here is what you can do:

  • Divide your financial goals into short-term (such as saving for your business) and long-term goals (retirement, vacation home)
  • Identify the exact or at least nearby amount you’ll need to fulfill these goals.
  • Add a time period with your goals.

At the end of this step, you should know why you want to invest, the size of your investment fund, and your timeline.

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2.   Identify your risk profile.

Now that you have a list of your investment goals, it’s time to identify your risk profile.

Your risk profile depends on several factors, including both personal and family-related variables.

Some factors you need to consider while finding out your risk profile are:

  • Your age
  • Investment horizon
  • Employment and employability
  • Financial circumstances (existing assets)
  • Number of dependents
  • Financial responsibilities.

There are two ways to do it.

You can take online risk assessments to identify your risk profile. It usually involves a couple of questions only.

Here is a great FREE risk assessment tool from Vanguard

The second approach is to work with a financial advisor to identify your risk profile. It may work better if you have a limited understanding of financial matters.

 

Join the FREE 4-Day Investing for Beginners Challenge

  

Investing for Beginners Challenge
3.   Choose between DIY (Do-It-Yourself) or professional investing.

How do you want to invest?

Do you want to invest your own money or need a professional?

Well, over three-fourths of Americans are DIY investors, with only 17% seeking professional financial advice.

However, it’s a personal choice. If you’re confident about your financial knowledge, go ahead, invest yourself. And, if you need some handholding initially, seek the help of a financial advisor.

The trick is to be honest. This step will have financial repercussions, so take your time.

 

4.   Learn about different asset classes.

If you’re choosing to be a DIY investor, the next step is to learn about all the asset classes available to retail investors.

  • Bonds: These are fixed-income investments that offer steady returns throughout their tenure. You can choose between US Treasury or municipal bonds or corporate bonds.
  • Cash: There are plenty of cash investments, including CDs, high-yield savings accounts, and money market accounts. These investments are fairly simple.
  • Real estate: Real estate offers rental income, capital appreciation, and tax breaks. However, you’ll need a considerable amount to start with.
  • Stocks: Stocks are the most exciting asset class in this group. You can either become a trader, invest in mutual funds, or let your money grow through an index fund.
  • Commodities: If you have an eye for reading trends in the commodity market, you can invest in a wide variety of physical assets.
  • Digital currency: For tech-savvy investors, digital currencies or cryptocurrencies present a growing asset class.
5.   Passive investing versus active investing.

In this step, you have to choose between active and passive investing.

Active investing requires a hands-on approach, involving daily market research, understanding of economics, trading strategies, and tax management. You can either do it yourself or have a manager do it for you. Make sure to take the commissions or management charges into account. You can also choose some actively-managed mutual funds to leverage the expertise of the top portfolio managers.

Passive investing is suitable for long-term investors. You’ll do all the research involved in active investing, but you’ll take a long-term approach. Passive investors follow the buy-and-hold strategy. Warren Buffett first bought Coca Cola shares in 1988 and held on to these stocks to book significant profits later.

Alternatively, you can also choose a low-cost index fund and make regular contributions. Historically, very few fund managers can beat the overall returns of the market consistently.

 

6.   Find money to invest.

At this step, you’re ready to invest, but you need to find the money to start investing.

If you’re among the half (47%) of the population with a budget, good job, but if you fall in the other half, create a budget right now.

It may take some time to save the money required for investing, but that’s part of the process.

 

7.   Set a timeline to make your first investment. Do it!

You’re ready!

Depending on which asset class you chose, open an investment account. For those investing in stocks or market-related assets, start with a discount broker.

The trick here is to set a timeline to make your first investment. You’ve already done your homework, it’s time to execute what you’ve learned.

 

Bottom line

Investing could be overwhelming for new investors. There are just so many factors or parts moving together. The key to becoming a successful investor is to learn as much as you can and practice patience. Nobody got it right in the first go, so learn from your mistakes and continue investing!

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Managing money, while balancing work, kids, and multiple responsibilities can be stressful, overwhelming, and frustrating. But the good news is, you’re not in this alone. Together, let’s embrace the beauty of financial freedom so that we can work less, and live more!

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