Organise your finances
Before you start on your investing journey make sure you make an inventory of your personal finance. Consider your employment situation or whether you have a secure income. Review any debts before investing money, the last thing you want is loosing money you can’t afford.
Understanding the reason why you want to start investing is also essential.
- Do you want to invest for your retirement?
- Do you want a long term investment or a short one?
- Are you the only one with an access to this money?
Set up a cash reserve
If you want to get into the investing game you might want to have some savings. The money you put aside should be enough to cover you for at least six months rent plus expenses. That would put you on ease in case something happen with your risk type investment.
Educate Yourself
Get some time to learn about investing by reading books, blogs, watch YouTube videos and listen to podcasts. You might even consider taking an online course. We live in the information era where you can find everything for a given topic. The more you know the better!
Start a retirement plan
When you have your emergency fund all set up the first place to start investing is in your retirement account. It’s a type of a long term investment and can produce immediate tax savings.
There are many retirement plans, some are provided by your employer and other are individual retirement accounts. Make a research with the best options for you.
Terms you should know as an investor
There are many automated services that can help beginners start investing.
- Stock: A stock is a general term used to describe the ownership certificates of any company. A share, on the other hand, refers to the stock certificate of a particular company. Holding a particular company’s share makes you a shareholder.
- Bond: A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). Bonds have maturity dates, at which time you can cash them in and collect interest money.
- Mutual Fund: A mutual fund gathers money from a lot of investors and invests it in assets such as stocks and bonds.
- Cash: Yeah, it’s the green notes in your wallet. But in portfolio terms, cash usually refers to CDs (certificates of deposit), money market accounts, or Treasury bills.
- Expense Ratio: You’ll see this term when it comes to mutual funds. “Expense ratio” refers to the expenses of owning a fund, including annual maintenance and administration fees, as well as the costs the mutual fund takes on for advertising.
- Price-to-Earnings Ratio: When looking at a stock’s fundamentals, the price-to-earnings ratio (or P/E ratio) is essential. It examines a company’s stock price as it relates to its earnings. A low P/E of 10 or less means the company isn’t doing so well. But higher is not necessarily better — a ratio of over 25 may be a sign that the industry is about to have its bubble burst.
