Investing can be one of the most complex financial concepts, but it is also one of the key pillars for financial independence and wealth-building. Understanding the various investment terms may seem overwhelming at first, but once you get the hang of it, you'll begin to feel more comfortable and confident on your investment journey.

One common misconception is that investing is only for the wealthy. Investment is a path that anyone can take to build wealth and grow their money. Understanding how to start investing, especially when you're taking your first steps, is the first move toward financial independence.

In today's article, we will take you on a quick journey to learn everything about investment, its basics, and how to build your wealth through it.

What is Investment, in Short?

Investment, in simple terms, is the process of buying financial assets, like stocks, to earn a profit, a regular income, or some form of future return. Investing is a smart financial choice because if you simply leave your money in a current account or savings account, you won’t be able to keep up with rising living costs or build wealth for your future. Therefore, the best solution is to use your savings as a way to gather the funds you need to invest or achieve other financial goals.

The investment allows you to:

• Save effectively for long-term goals, such as retirement, by taking advantage of higher interest rates and compound interest.
• Protect your savings against inflation by ensuring your money keeps up with rising costs.
• Provide passive income from investments.
• Achieve financial freedom and build personal wealth.

Basic Investment Concepts

Understanding the basics of investing is a crucial step on your journey, allowing you to make informed financial decisions. Here are key concepts you should know:

Risk and Return:

The higher the potential return on your investment, the greater the risk. Conversely, low-risk investments generally offer lower returns. Understanding this relationship is important when making investment decisions.

Asset Allocation:

The way you distribute assets in your investment portfolio depends on factors like your risk tolerance, investment goals, and the time you have to reach those goals. For example, if you have a long time horizon like saving for retirement, you might be more comfortable with higher-risk investments like stocks.

Market Fluctuations:

The market goes through periods of ups and downs, and these fluctuations are a normal part of investing. Trying to predict the market or making decisions based on short-term market movements can be risky, as it is nearly impossible to accurately predict these changes.

Fees:

Investment fees, such as management fees and trading commissions, can impact your returns over time. It's important to be aware of these costs and understand how they affect your investment performance.

Investment Goals

Safety: Many people prioritize safety in their investments, especially those who prefer lower-risk options. While no investment is 100% safe, options like government-issued bonds tend to be more secure.

Liquidity: It's important to have investments that can easily be converted into cash when needed, especially in case of emergencies. Liquid assets like bonds can offer a way to access cash quickly.

Why Should Beginners Invest?

People are increasingly turning to investing to grow their wealth. Here's why:

- Growing Wealth:

The primary goal of investing is not only to preserve wealth but also to grow it over time.

- Regular Income:

Investments can provide a steady source of income, whether through interest, dividends, or rental income.

- Combining Passion and Growth:

Investing doesn’t have to be boring. You can invest in things you are passionate about, like real estate or art, and still see financial growth.

- Improving Quality of Life:

With consistent returns, investing can improve your quality of life and help you achieve personal and financial goals.

- Better Than Savings Accounts:

Savings accounts may not keep up with inflation, but investments can help your savings grow over time.

How to Start Investing?

So, after reading all this, you're probably asking yourself: how do I start investing? Most investors create a portfolio with a mix of different investments and hold onto it for years. They know that investing is like running a marathon—it takes patience and planning. Now, let’s break it down and help you start:

1- Set Your Investment Goals

The first step to kicking off your investment journey is setting clear investment goals. This means figuring out why you want to invest and what you hope to achieve. Are you saving up for a comfy retirement, putting down a deposit for a new house, or maybe saving for your kids’ education?

Clear goals help newbie investors stay focused and motivated, especially when the market gets a little wild. Think of your goals as your compass, guiding your investment decisions and helping you measure your progress. Keep in mind, that each goal has a different timeline and risk level.

2- Decide How Much to Invest

Next up, figure out how much you can comfortably invest. No need to go big right from the start—even small, regular amounts can grow over time thanks to compound interest (aka the magic of investing!). As you start, you might feel the urge to invest more, especially if you’ve got long-term goals like retirement.

Experts usually recommend setting aside 10-20% of your income or following the 20/30/50 rule for budgeting and investing regularly. But hey, for a lot of people, investing 10-20% of their paycheck right away might not be realistic. The key is to start early and invest regularly at a pace that works for you.

3- Know Your Risk Tolerance

Every investment comes with some level of risk. But how much risk you can handle varies from person to person. Your age, income, financial goals, and other factors play a role in determining how much risk you’re comfortable with. Usually, investors categorize risk tolerance into three types:

• Conservative Investor: Prefers stability over higher potential returns. Their typical asset allocation is around 40% stocks and 60% bonds.
• Moderate Investor: Aims for a balance between stability and higher returns, usually allocating 60% to stocks and 40% to bonds.
• Aggressive Investor: Comfortable with high risk and shoots for big returns. Typically, they allocate 80% to stocks and 20% to bonds.

It's super important to know your risk tolerance. Are you cool with high-risk, high-reward options, or do you prefer a safer, more stable growth plan? Are you close to retirement, or do you still have plenty of working years ahead? Your risk tolerance will shape the kind of investments you choose.

4- Choose Your Investments

Now that you've got your goals and know how much risk you can handle, it's time to pick your investments. There are tons of options out there, and most everyday investors put their money in stocks, bonds, mutual funds, or real estate investment trusts (REITs). For beginners, mutual funds can be a great starting point because they offer built-in diversification and lower risk.

5- Keep an Eye on Your Investments

Once you've started and picked your investments, congrats—you’re on your way, and there's no need to worry about how to start anymore. But don’t forget, investing isn't something you can just set and forget. You need to review your investments regularly to make sure they still match your goals and make any necessary tweaks.

Market conditions can change, and your financial situation or goals might evolve too. If you’re new to investing, it might feel overwhelming at first. But don’t hesitate to consult a financial advisor to get personalized advice on how to make your money work for you.

To wrap it all up, here are two key takeaways. First, make sure you're ready to invest by checking a few indicators, like having extra income after covering your essentials, being free from high-interest debt, and having clear financial goals.

Second, remember that investing doesn’t have to be complicated. All you need is a basic understanding of asset types, a set of financial goals, a good grip on your risk tolerance, a diversified portfolio, a reputable investment platform, and bam—you’re ready to make your first investment.