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Starting Out as an Investor: Steps for Getting Prepared

If financial freedom is your goal and you want to grow your wealth to get there, investing is key. Most people want to know what the best things to do are in order to make their money stretch further and improve their net worth without burning themselves out.

Investing allows you to make your money work for you by working smarter, rather than harder, to increase it. No matter your current situation in life, or your ultimate goals, there are lots of investment options available to help you put your hard-earned money to work for you.


What’s the Difference Between Investing and Saving?

Most people know that it’s important to try and save some money for a rainy day. Even if you only have a few hundred dollars set aside for an emergency, it can make all the difference to how you cope and how you feel if something unexpected happens. Saving might be something that you do if you want to buy something new that you can’t cover with your wage alone, like a down payment on a new house or a brand new car.

On the other hand, investing your money works differently, allowing you to grow your savings over time rather than them stagnating in a bank account earning minimal interest. If you want to start growing your wealth, it’s important to stick to a firm budget so that you’re spending less money than you earn, putting the difference aside, and investing it in a diverse portfolio of investments to minimise risk and get the best returns. So, what do you need to do to get started with investing?

Get on Top of Your Financial Situation:

Before you get started with investing, it’s important to make sure that you’re on top of your financial situation and that everything is going to be working for you. One of the main ways to do this is to put more effort into becoming debt-free. While debt is something that many of us can’t completely avoid today, if you want to grow your wealth with investing, don’t let being in debt hold you back.

While some essential debts like your mortgage might not be something that you can clear any time soon, consider upping your payments towards credit cards, loans, and other debt types so that you can free up more money to invest each month along with improving your credit score.

Set Your Budget:

Having a solid understanding of your budget can make all the difference to how you invest, what you invest in, and your level of risk. It’s important to determine how much money you can comfortably afford to invest in anything from shares to cryptocurrency or bitcoin ETFs.

As an investor, it’s important that you are never investing more money than you can afford to lose, since whatever you are investing in, you should be aware that there is always the potential that you could end up losing it all. This is just another reason why a diverse portfolio of investments is so important since if you put all your eggs in one basket, your level of risk is much higher compared to spreading your investments out with different ones.

Research Investment Types:

Once you have an idea of how much you’re able to invest on a regular basis, it’s time to research the different investment types and asset classes to figure out which ones might be the best one for you. Some of the basics include stocks and bonds, which most people have heard of, but you can look into other types like options, commodities, property, mutual funds, cryptocurrency and exchange-traded funds to name a few.

Once you’ve decided on the best investment for you, making sure that you are knowledgeable about it before you get started is key. There are plenty of resources online to learn more about popular options like stocks and bonds along with all the other choices. If a bitcoin ETF is something that interests you, you can visit Wealthsimple to find out more about how a bitcoin ETF works and where you can invest in them.

Choosing the Right Investment Type for You:

Once you have reached a point where you feel that you are ready to start investing, it might be a good idea to go with a popular, well-known option like stocks or even cryptocurrency that make ideal starting points for beginners due to the wealth of resources, support and advice that is available surrounding them.

Start off with an investment type that is easy to understand, relatively low-risk and allows you to get some practice with before you invest more money or diversify your portfolio with a more advanced option. Some of the most popular ways that new investors invest their money include:

Retirement Funds:

Opening a retirement fund account like a registered retirement savings plan can be one of the first simple investments that you make, especially if your ultimate goal is to enjoy your retirement. You can open one of these accounts as early as possible in your life and the earlier the better, since you’ll be able to pay more into it before you retire.

Everything that you pay into the fund will be exempt from tax until you withdraw it when you retire, at which point you’ll pay less tax on it due to being in a lower tax bracket.

Bonds:

If you want to get started with a simple and relatively low-risk investment type, bonds could be an ideal choice for you. When you purchase a bond, you are essentially agreeing to lend money to a company or a government body for a certain amount of time. Once that time period is up, you’ll be repaid the amount that you lend along with a pre-determined amount of interest.

However, since this is quite a low-risk option, it does not have a lot of potential for growth and is often a great choice for balancing your portfolio and protecting your wealth while investing in stocks and other riskier options.

Stocks:

Stocks and shares are some of the most common and popular investment options, and are probably the first things that come to mind when you think about investing. It involves purchasing a share in a publicly traded company, which you will own.

The value of the share might go either up or down over time, and the aim is to sell your share to somebody else when the value is high to make a profit on it. You can also invest in dividend stocks, which involve stocks where the company pays out quarterly dividend payments to all shareholders.

Real Estate:

Real estate is another popular investment option for beginners, although it does require a larger upfront investment amount than most. There are several ways that you can make money from real estate including selling properties or renting them out.

Rental properties might be a good investment for those who are nearing retirement and want to add an additional recurring income stream, while real estate investment trusts allow you to invest in commercial properties to earn returns in the form of dividend payments.

Cryptocurrency:

Despite being one of the newest types of investments available today, cryptocurrencies like Bitcoin have become one of the most popular choices among new investors. This is because there is a huge amount of information available to help you get started with investing in crypto and the process is fairly easy as all you need to do is join a reputable cryptocurrency exchange where you can start buying cryptocurrencies of your choice often for a very small amount.

With the world moving away from cash payments and the crypto market set to be regulated soon which will see big investors joining the game, now is considered to the best time to get involved with investing in cryptocurrency for huge returns later down the line.

Alternative Options:

Aside from the most well-known investment types, you can also choose from a wide range of alternative and lesser-known options such as commodities like precious metals and energy products, currencies, annuities, and more. The Forex market, for example, is one of the most traded markets in the world today and involves investing in different currency pairs.

Diversifying:

Now you’re ready to start investing, it’s always wise to plan ahead to how you are going to diversify your portfolio in the future. Start off with one investment type that you understand and like, but always be looking out for more.

You may want to consider working with a financial advisor or an investment coach or manager who can help you make the right investments for your overall goals and get on the right track to financial success.

Whatever your financial goals are, the right investments can help you get there. From improving your financial situation to choosing the right investments to make, the right preparations can make all the difference.

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