Investing can be one of the complex concepts to understand and master in personal finance- but it is the cornerstone to achieving financial independence and wealth building.
How much money do I need, how do I get started, and what are the best investment strategies for beginners? These are some very common questions anyone looking to tap into the investment market has.
Our beginner’s guide to investing will help equip you with the basic knowledge you need to start this journey towards financial freedom.
Starting with the basics, investing in simple terms is setting aside money for the future by putting it to work for you. When you invest, you are essentially purchasing something that you believe will increase in value over time.
But the risk is that there are no guarantees that they can pay you back with the returns or values you expect. In fact, the value of any investment can fluctuate depending on market conditions and many other factors, so you could get back less than you invested or vice versa. This is where the concepts of risk management and knowledge in investment come into play.
In other words, investing provides another source of income that can fund your retirement and get you out of financial hurdles. It grows your wealth, helps you meet your financial goals, and increases your purchasing power over time - all while letting your money work for you.
Today, there are many diverse investment options that you can choose from. However, they all have their own pros and cons and require unique strategies to obtain successful and sustainable returns.
The right time to invest depends on the primary financial goals you want to focus on at your current age. Generally, the earlier you invest, the more you will be able to enjoy the returns at their fullest. This means the longer the investment horizon you're willing to cultivate, the better chance you will have to realise extended annualised returns on your investments.
When you are young, you will have most of your earnings years ahead, and your focus will likely be on building up capital to safeguard your future. Once you get married and build a family, you will tend to prioritise your family's needs and plan for your children's educational pathway. As you get older, you are more likely to focus on securing your retirement lifestyle.
Always remember there is more to investment than for retirement. Investing can help you buy a home, travel, start a dream project, and generate a steady stream of passive income to pay your bills in the future without compromising on your lifestyle.
Behind every successful investment is a written, measurable, and repeatable investment strategy. Just like how a house cannot be built without a blueprint, every successful investment calls for a strategy. Here are four simple steps to help you build a sustainable investment strategy.
Describe what you are doing and what you are expecting as a process. Doing this will help you articulate it and give you something to revert back to in times of chaos, preventing you from making emotional decisions.
Make sure what you write down matches your long-term investment objectives. It also gives a guide to review and change anything necessary if you notice any drawbacks in reaching your objectives.
Having a standard set of beliefs can guide you towards the right investment decisions. This includes understanding or believing why some investments become over or undervalued and how to exploit those. These beliefs can come from industry knowledge, special research, or from professional investors or advisors you know of.
Once you know what your competitive advantage is, you should understand how to profitably execute a long-term trading plan to utilise it. However, along the line, remember that your competitive advantage can eventually lose its profitability simply because other investors are implementing the same strategy.
Any good investment strategy performs well in every market environment. This includes having a thorough knowledge of your strategy's strengths and weaknesses. Especially as market trends and economic cycles change, even great investment strategies will have their own share of good performance and periods where they experience lagging.
Understanding your strategy's weakness helps you maintain confidence in your decisions, even if your strategy may seem temporarily out of track. It can also help you find strategies that may complement your own when needed.
You will never know how to understand, track, or improve something you do not measure. So, make sure to have benchmarks for your investment decisions. These benchmarks should match your investment objectives and the amount of risk you are willing to take, i.e., risk tolerance.
The minimum amount required to start investing can also be different across demographics. It should be based on your unique financial situation and an effective investment strategy that works for you and your budget.
As a general rule, allocate a set percentage of your net income for investments. This percentage can vary according to your income, savings, and debts. Most of them invest somewhere around 15%-25% of their income.
You can also use the 50/30/20 budgeting strategy to understand how much you can allocate for investments from your monthly income. This strategy breaks down your income into three categories: your needs (50%), wants (30%), and the remaining 20% for debt repayment, savings, and investments.
While for some, investing 10% of their monthly income isn't feasible, it shouldn't be a reason not to invest at all. In fact, investing is less about how much you're investing and more about how much time your investment has to appreciate in value to give out returns.
In 2024, some popular investment options to consider include:
Remember that all these options carry their own unique return-to-risk ratios and should only be picked after thoroughly analysing your financial objectives and market conditions. This is where getting professional advice can be beneficial to mitigate risks and navigate the investment landscape safely with the guarantee of sustainable returns.
Professional advice from financial planners and advisors is important for the following reasons :
At AIX, we believe there is no one-size-fits-all when it comes to investment. All our investment plans are personalised to your unique objectives and risk tolerance.
You can talk to one of our financial advisors at +971 56 732 7222 or fill out our inquiry form here at contact-us, and we will get back to you at our earliest convenience.
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