Been asking how to start investing? We asked The Curve’s Vic and Soph for their top 3 tips for anyone starting their journey to financial freedom in this strange economic time – and yes, it’s STILL a great time to get invested (see what we did there) in investing.
Growing your wealth and achieving financial success is so empowering – with it comes flexibility, choice and freedom. However, getting to that point can be overwhelming, scary and intimidating. Starting your investing journey can seem like a daunting mountain that is impossible to climb.
Even reading this article means you have taken the first step towards looking after FUTURE you. It’s never too late, you haven’t missed the boat – but the sooner you can begin, the better. So we have come up with some easy to follow, beginning steps as a little helping hand.
How to start investing? Tip 1: Take a long-term view (& start today!)
Long-term investing enables you to take advantage of compound interest (which is interest on interest on interest) to generate even bigger profits. As interest compounds on interest, your savings grow exponentially. Albert Einstein calls this ‘the eight wonders of the world’. It is inevitable that you will experience unpredictability and volatility along the way (your profits to rise and fall), and that is the nature of investing, but the longer you invest for, the smoother the ride should become.
In order to invest for the long-term, you need to actually start investing. Delaying your investment journey is just another day lost when it comes to making money. This is due to the magic of compound interest. We hear all too often ‘I’ll start tomorrow’. But this quickly becomes next week, next month or next year. If you have a shorter investment horizon (a timeframe less than two years), you can still invest! You will just alter what you invest in. Your portfolio should be weighted towards more lower-risk investments like bonds or cash versus a higher-risk portfolio weighted more towards stocks.
How to start investing tip 2: Diversify
If you had invested your entire life savings in travel companies during the COVID-19 pandemic, you wouldn’t be too happy right now. Investing in shares can be risky but diversification helps reduce that risk, while also achieving good returns. You may have heard the phrase ‘don’t put all your eggs in one basket’. Diversification is the spreading of risk — meaning your money is invested in multiple baskets, and you are less vulnerable to the peaks and troughs of the market. This means investing in different companies, different assets, different sectors or different countries. The more diversified the better as you never know what is around the corner….
Speaking of, you should never try to time the market either. Nobody knows what the stock market will do in the short-term. Anyone who tells you they do, doesn’t. Invest in a quality company or fund, diversify and look long term. If you sit back and wait for a ‘better entry point’, you might miss the opportunity. On the flip side, if you try to ‘pick the bottom’, you could end up catching a falling knife (buying something that keeps falling). Over the last 20 years, the US stock market has finished negative only four times. So if you had waited for a ‘pullback’, you could’ve been waiting a number of years (and missing out on a lot of gains).
How to start investing tip 3: Invest in what you know
When you buy a stock, you are buying a share of that business. Hence, you become a part owner of that business. There are an infinite number of reasons you might decide to invest in a certain company. But there’s one you should always avoid: Buying a stock merely because you think it’s going to increase in price. That’s because even the best investors aren’t able to predict how the market will perform.
Instead, you should invest in companies that you both understand and believe will grow over the long-term. One of the most famed investors, Warren Buffett, once said, “Nobody buys a farm based on whether they think it’s going to rain next year.” Investors think an investment in stocks is different from an investment in a business. But it isn’t.
Invest in businesses you understand and leave the rest for other investors. Give it the ‘elevator pitch’ test – if you can’t explain what the company does in the time it takes to ride an elevator, it’s not worth it.
Don’t listen to your hairdresser or Uber driver (no matter how good their rating is). Always do you own research (or ask an investment expert). You wouldn’t buy a car without taking it for a test drive, so don’t invest your hard-earned savings in a ‘hot tip’.
When deciding what to invest in, do your research and always understand what you are investing in. Take the time to research an investment before making the leap. Read the newspaper, ask questions, and don’t be afraid to make mistakes. Don’t expect to be an expert from day one. Investing is all about continually learning and building on your knowledge. Invest in FUTURE SELF.
A simple way to keep yourself accountable, track your investments and create better wealth goal setting is using our new AOL x The Curve Financial and Investment planner. The planner includes an education section with an investing glossary, guidance on budgeting, financial planning and goal setting, and monthly trackers to help you hit your targets.
