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Written by Administrator   
Tuesday, 24 March 2009 01:59

Beginning investing - learn to invest money!

If you are new to investing, it's not that hard to get started once you have the basics. My goal is to break it down so you can see that for yourself, in just a few simple steps.

1.  Discover your investor profile

The first thing to do when beginning investing is to figure out a general idea of your investor profile. An investor profile is simply a way to determine a good starting point for you as an investor, based on things like how much money you have to invest, the type of investing you are interested in, the amount of risk you are willing to take, etc. For example, some people have large amounts of money to invest, while others are just getting started. And yet others might be somewhere in the middle. Below i've listed some basic profiles that will give you a general idea of how this helps determine the best way to invest your money:

I have a substantial amount of money to invest

I have an inheritance, a settlement or lottery winnings to invest

I need to start saving for retirement

I am on a budget and want to start investing

I am a young person just starting out

Please note that these are just very basic profiles. There are many different sets and combinations of criteria you can use to determine a profile, even down to a person's age and gender. So, the above profiles won't get to that level of detail. You may even be a mix of the above, and can fit into more than one category. Basically this just to give you some insight on what an investor profile is, along with some ideas on where you might consider investing your money. If you want a very specific profile along with a detailed plan, you may want to consider consulting an investment planner or advisor.

 

2. Choose an investment

The first step is choosing an investment type. Whether stocks, bonds or mutual funds, different types of investments come with various levels of risk. So, you'll need to figure out what type of investment you are most comfortable with, and how much risk you are willing to take. For example, if you are a young person or student and just starting to invest, you may choose to take on more risk for the possibility of reaping greater rewards, so buying individual stocks might be well suited for you. Then again, you might be a single parent or a retiree who doesn't want to take lots of risk, and merely wants a cushion available for emergencies. In that case a good money market account or certificate of deposit might be a better choice. Everyone has a different situation and different investment goals. You may even decide to put your money in a mix of investments, which is also a good way to diversify. I discuss this a bit more in the next step, which is coming up with a strategy.

Note: If you need help with this step, I recommend first reading the Investing Basics section of this site, which can be found in the menu on your left. It will give you a good primer of the different types of investment options that are available to you, which will help you decide which is the best way for you to go.

 

3. Map out a strategy

Once you have an idea of what type of investing you would like to do, the next thing to do is map out your investment plan. This doesn't have to be anything complicated, you just need a general idea in your mind of where you are going. What is your goal? Of course a good goal to have is "make as much money as possible". :-). But you also need to be realistic. If you want to make a 20% return on your investment, you would not be able to do this in a money market account. So you would need to take more risk, maybe buy a few individual high growth stocks.

Other things to consider: Is this a one time lump amount you'll invest, or will you add more money to your account later? And, what is your time horizon? For example, if you plan to invest more later, maybe you could start out with investing your initial investment in a mutual fund, and then as you get experience and become more comfortable with investing you might want to take more risk. As you add more money to your account over time, you may decide to allocate a portion of this to try your hand at individual stocks.

Another example: suppose you have just opened an account with $2,000. You feel comfortable taking some risk because you know you won't need this money for the next few years. So you want to buy some stocks, but you also want part of your money in a low risk cash investment. So, you might think about putting $500 into an interest bearing account which you know you won't lose, and invest $1,500 in stocks. On the other hand, you might decide you're willing to risk the entire $2,000 in stocks, and if you incur losses it won't be the end of the world.

Once you know what you're going to do, just place your order(s) in your account for what you want to buy and you're done! There's more information on how easy it is to buy and sell stocks in the Stock Basics section if you want to know more.

If you need help in planning out a strategy or how to decide what to buy, you can visit the sections in the menu for the different types of investments to gain more knowledge in each area.

A word about debt!

 

Just as a side note, part of a good money management strategy is to reduce or completely pay off debt. If you do have debt, I highly recommend reading the Is Debt Evil? page where I talk about just how much of a negative impact debt can really have on your overall financial health!

 

4. Opening an Account

Step three: if you want to invest, you need an account somewhere. Although there are many brokers and banks to choose from, if you are anything like me and don't have a lot of time (or patience) for doing research, you probably just want a small list narrowed down to the best companies and you can make a decision from that. If so, then I have created a list of who I think are the best banks and brokers, based on my own experiences as a customer, their reputations, and best value (meaning lowest fees). You can find this in the Open An Account page on the menu. Feel free to use these recommendations, or if you prefer you can do your own research. Either way, you can open an account online in just a few minutes, so if you are ready to open one right now you can be investing as soon as your account is funded!

 

5. Moniter your investment(s)!

And for the 4th and final step, monitor your investments! This may sound like common sense, doesn't it? I mean who wouldn't monitor their account regularly and see how their investments are doing? Well, you might be suprised at the number of people who don't pay much attention.... I meet people like this all the time! I guess they think if they don't watch it for a year, when they come back they'll be pleasantly suprised to find their money has doubled. While I guess it's possible that could happen, that's not really a very good money management strategy! :-)

When I am invested in stocks, I try to check them every day if I can, even to just glance at them for 2 mintues to make sure there's no surpises I wasn't expecting. At the minimum it is advisable to check your investments once every week or two. Just scan the news and make sure nothing bad is happening. For mutual funds, probably every couple of weeks is fine, and checking the news isn't as much of a factor since individual stocks won't impact a fund as much as if you were investing in that one stock.

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Last Updated on Saturday, 19 June 2010 14:26