Investing 101

A beginner’s guide to help start your investment journey.

Thanks to compound earnings, investing when you’re young is considered one of the best ways to start seeing a solid return on your money. One of the greatest gifts we can offer the next generation is a strong foundational knowledge of financial literacy, to empower their financial future. In this article, we’ll explore practical strategies and tips for introducing beginners (no matter what age) into the world of investing, equipping them with the tools they need to navigate the financial landscape with confidence and foresight.

Getting started – investing:

Understanding your motivations:

All responsible investors have a clear investment strategy in place. Start by defining your ‘why’. Get clarity on your financial goals, whether it’s saving for retirement, buying a house, or funding your children’s education. Your values will also come into play, as different investments invest in different industries. Passionate about saving the planet and promoting a more sustainable future? Ethical investing might be for you. These elements will guide your investment strategy and risk tolerance.

Assess Risk Tolerance

Your risk tolerance is your willingness and ability to endure fluctuations in the value of your investments. Factors you need to consider when determining your risk tolerance are age, financial situation, and investment objectives.

Education

Take the time to educate yourself about different investment options, strategies, and market trends. There is a wealth of educational resources available for investors of all stages. Free content ranges from educational articles (like this one!) to topic-specific podcasts, you could also head to your local library to browse the finance section. When you’re ready, invest in your investment strategy by consulting a trusted financial adviser to enhance your journey, and ensure you’re thoroughly supported along the way.

Start with a Solid Foundation

Before diving into individual stocks or complex investment products, consider building a solid foundation with low-cost, diversified investments such as index funds or exchange-traded funds (ETFs).

Diversify Your Portfolio

Spread your investments across different asset classes, industries, and geographic regions to reduce risk and optimise returns. Asset allocation and diversification are key principles of successful investing.

Monitor and Rebalance

Regularly review your investment portfolio to ensure it remains aligned with your financial goals and risk tolerance. Rebalance your portfolio as needed to maintain the desired asset allocation.

Stay Disciplined:

Investing is a long-term journey, and it’s important to stay disciplined and avoid emotional reactions to market fluctuations. Stick to your investment plan, remember your goals and focus on your long-term objectives.

Explore our Knowledge Centre below for more insights.

Knowledge Centre

Understanding the key terms

Investment: This is your allocation of funds into assets or ventures with the expectation of generating income or profit over time. This can include stocks, bonds, real estate, mutual funds, and more.

Asset Allocation: The strategy of dividing your investment portfolio among different asset classes, such as stocks, bonds, and cash equivalents. It aims to balance risk and return based on your financial goals, risk tolerance, and investment horizon.

Stocks: Also known as equities or shares represent ownership within a company. When you buy stocks, you become a shareholder and may benefit from capital appreciation and dividends.

Bonds: Debt securities issued by governments, municipalities, or corporations to raise capital. When you buy a bond, you are lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity.

Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They are managed by professional fund managers and offer diversification and convenience for investors.

Exchange-Traded Funds (ETFs): Gaining popularity since their introduction back in the mid-1990s, ETFs are similar to mutual funds, but they trade throughout the day, on a stock exchange. In this way, they mirror the buy-and-sell behaviour of stocks. This also means the value can change drastically during a trading day.

While the movies may have taught us that Wall Street is another world away, your investment journey doesn’t have to be off to an intimidating start. Investing is a powerful tool for building wealth and achieving financial freedom, but it requires patience, discipline, and knowledge. By understanding key definitions and following the steps outlined in this beginner’s guide, you can embark on your investment journey with confidence and work towards achieving your financial goals.

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Remember to seek guidance from financial professionals and continue learning as you progress on your investing path. To better understand your investment options, you can book a complimentary consultation with one of our trusted advisers via the form below.

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What you need to knowThis information is provided by Invest Blue Pty Ltd. (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice regarding those matters and seek personal financial, tax and/or legal advice before acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.