One of my friends came to me the other day and requested I write about how to start investing, saying he really wants to learn how but doesn’t know the first thing about it. Thus, in response to his inquiry, I’ve decided to do a brief mini-series about how to get started. This post being the first!
My friend, with his desire to invest, is already better off than 66% of his peers as he realizes there is value in stowing away some savings to grow over time! Many people (mainly millennials) are shy when it comes to investing, showing little to no interest in it. It may be the risk factor, the ‘living for now’ mindset, or perhaps they just don’t feel like learning about it. It is also probably true that investing has never even crossed their mind. Whatever the case, I strongly advocate for everyone to invest, especially while young. So, get curious millennials…
“Seeking wisdom is among the wisest things you can do”
Why is investing important?
Do you want to increase your income by doing nothing? Do you want to grow your money by doing nothing? Do you want to live without financial worry when you’re older? Then you should definitely learn how to invest.
Many think investing is for the financially savvy or reserved for only those with a financial education. That is a myth.
In fact, there was a man who worked at UPS for 30 years moving boxes and yet he retired a multi-millionaire. How, you might ask… He lived comfortably below his means, investing every dime he could in mutual funds and high yielding stocks… When everyone was shocked about his wealth upon retirement he replied simply by saying “Anyone can do it!”
As you get a job, or start getting an income, you’re going to have expenses and things you need to pay for on a regular basis. But what are you going to do with the money you have left over after your expenses? Sadly, many view this excess as the opportunity to buy more stuff rather an ability to save or invest. What they don’t realize is that when you don’t invest or save, you are putting yourself and your family at great risk! It goes back to that idea of stewardship we talk about in Part 3 Changing Perspectives; Mind over Money!
Read The Richest Man in Babylon for a really cool story about this and the power of investing… You won’t be able to put this book down.
Before you begin investing, you should get into a habit of reducing your expenses and setting aside a portion of your income. (Also known as saving…) The more you can invest the better, as it will multiply much faster.
Investing your money is the means by which you multiply your wealth, making more money by doing basically nothing aside from taking a risk. BUT, there are some things you should know before we get into how to start investing. These are essential prerequisites before you get started. So, let’s lay the foundation for success.
What you need to know:
1) Investments can come in many forms: stocks, bonds, real estate, loans, mutual funds, Exchange-Traded Funds (ETF), commodities etc. (Here we are going to talk about investing in the stock market simply because it’s the easiest way to get started).
2) Investing is NOT gambling. When you buy stock in a company, you are buying a part of the company. You are becoming an owner. So consider what companies you want to own.
3) Investing involves some risk. There is a chance that you will lose money. This is why you need to be diligent in where you decide to invest. Be aware than stock prices fluctuate, it may be going up one day and down the next. Don’t be deterred by short term volatility!
4) Investing involves patience. It will usually take time to grow your principal investment. Most people lose money in the stock market from being fearful or impatient. If you believe in the companies you invest in, you should be in them for the long haul. Investing is a marathon, not a sprint.
5) Investing involves research. DO NOT BE AFRAID. I know research scares a lot of people away because the information may be difficult to understand or overwhelming. Or maybe laziness kicks in and you don’t feel like doing research (that’s why they invented mutual funds). I will provide a number of resources for you to increase your financial acuity!
Review these resources!
By reviewing the resources below, you’ll be able to understand how business works, how you get paid, and what the terminology means. Even if you think you know a lot, you should still get familiar with some of these resources and increase your knowledge / financial acuity. Check out all or some, but definitely be diligent in obtaining more knowledge / wisdom.
Watch this video to understand how business / finance works: William Ackman: Everything You Need to Know About Finance and Investing in Under an Hour
Check out Investopedia’s Investing 101 Tutorial!
Get familiar with some investing terminology at The Beginner’s Glossary of Investment Terms
For all of you readers out there…
Beginner investment books:
For the intermediate investor:
Before my next post, it would be great if you would:
1) Review some or all of the financial resources above. (Definitely watch William Ackman’s Youtube video and look at the terminology site!) Learn some terms like stock, dividends, income statement, etc.
2) Go on Yahoo Finance and check out some stocks like Intel, Apple or any other company you can think of! Get familiar finding stocks!
Get ready for my next post when we dive into how to get started investing. I will discuss my strategy with you and talk about how I got started! You will be surprised how easy it is.
Check out the next post here: Intro to investing: How I got started and my 5 point philosophy and be sure to follow! Thanks for reading!
Cheers & God Bless
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