Investing for beginners: How to start in 2021
Ready to pull up your socks and get your finances in order? Growing your money is one of the most complex yet most important parts of personal finance. Here’s some tips on how to invest as a beginner — including what types of investments a beginner should try and strategies that may help you.
Sometimes, the world of investing can seem like an exclusive club, where only members have access to the top-secret instruction manual. You want to get started, but you feel like someone should have sat you down and taught you about it and never did.
Should you begin investing now?
Yes. Investing is for beginners, too. And you should get started as soon as possible.
Investment is largely a waiting game. The sooner you get started the more money you can accumulate over time through compounding interest. That’s earning interest on your interest.
However, just because you’re starting late doesn’t mean you can’t earn high returns. Check out our guides for investing at 30 and investing at 40 for more tailored advice.
Now, from deciding your strategy to choosing your investments and platform, here’s a brief guide to investment for beginners.
Investment strategy for beginnersAs a beginner there’s some things you need to think about before you even begin.
- Set up an emergency fund: This is a sum of money that can cover your living expenses for a few months if everything goes down the drain.
- Think of your goals: Investing almost always means putting your money away for a significant chunk of time with minimal access. If you’re saving for a short-term financial goal, like buying a house, you might want to consider alternatives — more on that later.
- Research your options: This goes without saying, but make sure you know what you are investing in before you invest in it. Depending on where you live and your investor status, you may need to adjust accordingly.
How to invest as a beginner:
- Keep it simple. You’re a beginner investor and you probably don’t know much about the market. And that’s fine. As long as you are earning any kind of interest on your assets you are investing.
Start investing in easy things like the stock of a company you know or a high-yield savings account first. Then start researching more complex things like stock options and alternative assets once you get a feel for the market.
- Start with small amounts. You don’t need to throw all your money into an investment right away. In fact, it’s always better to diversify your portfolio in the long run. Just start with a small amount. Maybe designate a small portion of your next paycheck as your “investment money” and invest the same amount every 2 weeks.
- Put most of your funds in safe options. Volatile options like stocks and crypto can give you great returns, but they can become a liability if something unexpected happens to the market.
You should keep the vast majority of your money in something you know won’t change a lot over the long term.
Where should beginners invest?
Although many things class as “investments” investing typically refers to buying financial products. We can broadly split these into two very broad categories: high and low-risk investments.
When we say high-risk, we’re usually referring to investments that have the potential to get you a lot of money in the short term and may require a large amount of research.
While high return does not always equal high-risk, it’s a good idea when deciding what is the best investment for a beginner to thoroughly vet any investment that promises large rewards. Often they have a larger degree of risk.
High-risk options include:
- Stocks. While stocks and investment are almost interchangeable terms these days they are far from the safest option. Choosing stocks requires a lot of research. Companies that are shooting up right now could come crashing down in a recession.
- Foreign exchange (forex) is buying foreign currency in the hope the exchange rate will make it more valuable in the future. This is an incredibly volatile market and hard to play as a beginner.
- Collectibles like comic books, baseball cards, or art can be a great hobby if you enjoy doing it. However, these items rarely give much return in a normal lifetime and are usually only valuable to other collectors.
Inversely, investments that promise lower returns in the short term tend to be low risk. These are generally what beginners should invest in. At any level, you should try to have most of your money in low-risk investments for a long period. Once you have a steady profit you can always consider playing around with riskier options.
Low-risk options include things like:
- Index funds/ETFs. These funds contain a wide range of individual stocks to diversify your portfolio and reduce risk. They are usually run by professional fund managers You can buy into them through a broker like Fidelity.
- Bonds. These work similarly to an IOU to the government or a company. They will pay you a small percentage of interest at the end of the bond term.
- Employer pension plans. Your employer invests your money into diversified funds (which contain a range of stocks, bonds, and more). As they are run through your own company, the risk is quite low.
- Peer to peer loans. These are investments made directly to other individuals who will pay you back at the end of a term. Many platforms today have advanced risk-assessment measures or collateral backing to ensure reliable borrowers and steady returns.
However, these days many of the low-risk options don’t cut it either. Traditional assets like high-yield savings accounts and bonds both used to give you decent returns with great security. But an American today is lucky to get over 1% APR on either one.
Unfortunately, unless you’re getting a return of 2%, you’re not beating inflation and effectively losing money.
Is there a solution? Actually, yes.
A new alternative for beginner investors looking for better, steadier returns of 7% or more
In recent years, peer to peer lending platforms have appeared around the world to take over where banks are losing traction. They provide better returns to investors and better rates for borrowers.
Companies like MyConstant offer investment products with better interest rates than high-yield accounts and none of the typical issues that come with stocks like market volatility or limited access.
Our crypto-backed loans are backed with collateral worth 150% of the loan value, so you don’t need to spend time researching how risky the investment is. If a borrower defaults, you are very likely to get your money back.
The interest rate on a 1-6 month investment goes up to 7% APR — enough to rival a safe return in the stock market.
Meanwhile, our Flex offers an interest rate of 4% APY more than 50x any high-yield account. You can deposit as much or as little as you want and withdraw any amount with zero fees whenever you want.
You’ll also have access to a range of other useful features, including the option to automatically reinvest your money and easily transfer your money from fiat to crypto.
Sign-ups are free. Come check us out today and learn more about investing in our blog.
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