How to Start Investing: A Step-by-Step Guide From Top Market Experts

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What if how to start investing was simpler and more accessible than you think? Even if you have little capital to begin with, there are plenty of investment opportunities waiting for you. 

This guide features guidance on how to start investing (even with little money) from top investors and financial professionals. 

Taking a beginner-friendly approach, we broke down the complex theory into actionable, bite-size chunks. 

The benefit? You’ll learn how to make your money work for you to achieve your financial goals.

Key Takeaways

  • You do not require a substantial amount to get started in investing; even small amounts can pave the path toward financial growth using fractional shares.
  • Focus on where to invest money within your knowledge realm, aligning with your long-term goals and risk tolerance, to make informed decisions.
  • Utilizing a mix of different investment options and asset types, such as stocks, bonds, and ETFs, helps manage risk and can lead to more stable returns over time.
  • Implementing a structured investment strategy, like the all-weather portfolio, enables resilience across varying economic conditions, emphasizing the importance of a balanced, informed approach to investing.

An Introduction to Investing for Beginners

Starting to invest is like planting seeds for a future garden of wealth and security. Unlike just keeping your cash in a bank or hidden under a mattress, when you invest, your money can rise in value with time. It is also a way of ensuring your money does not lose purchasing power because of inflation.

Many people think that investing is complex and requires lots of money. However, despite the risks, beginning with even small amounts can lay the foundation for a better financial future.

How to Start Investing Your Money in 7 Steps

Step 1: Just Get Started

Talking to Techopedia, Charles Henry Manchau, Chief Investment Officer at Syz Group, explained why starting early is key:

“The sooner you start investing the better, and you don’t need to start with a large amount – here’s why: 

 

1) The earlier you start, the higher your risk-taking ability

 

2) You enjoy the benefit of compounding

 

3) Since investment tenure is longer, the investment amount can be small.”

This early start isn’t just about growing wealth; it’s about leveraging time to your advantage. 

Starting early enhances your capacity to absorb risk, a crucial factor since higher risk can lead to potentially higher returns. If you think about it quickly, it makes sense – will you have more to lose when you’re 21 or 51 years old? 

Moreover, the magic of compounding interest becomes more potent over a longer period, turning even small investments today into significant sums in the future. 

Take a look at this graph showing how to invest a theoretical $6,000. You can see dramatically different results based on the age you start.

The Power of Starting Early

Similarly, an extended investment horizon enables setting aside smaller regular contributions. 

When you are starting out and can only afford $50 per month as a regular contribution towards your investment account – this is much easier than accumulating a large amount before starting. 

Manchau’s insight underscores a fact of life when investing: time is not just money, it’s your most valuable asset.

Step 2: Define Your Financial Goals Clearly

The next critical phase is determining what exactly you want financially. 

This calls for knowing what objectives you have envisaged so as to create a winning strategy. Why do this? Setting definite targets helps outline a roadmap for your investment opportunities toward achieving the intended results.

Practical questions might include:

  1. What are my financial priorities for the next five, ten, or twenty years? 
  2. Am I saving for a down payment on a house, planning for a comfortable retirement life, or funding my education?
  3. How much risk am I ready to bear in order to reach these goals?

Reflecting on such questions can help set clear, realistic objectives. Consequently, understanding your financial goals also means understanding what it takes to achieve them. This may include:

  • Adjusting your current spending
  • Saving more diligently
  • Educating yourself further on investment strategies

Each goal will likely necessitate different ways to invest money based on its nature and timeline.

For instance, saving for a short-term goal might involve more conservative investments compared to long-term aspirations, which could tolerate higher risk for potentially greater returns.

Step 3: Explore Your Investment Options

David Pieper, Systematic Investment Strategist with Intalacon, highlighted the importance of knowing various alternatives for where to invest money. This is crucial as it can have a significant effect on your ability to achieve your financial goals.

Major Types of Investments

First off, think about major types of investments such as:

  • Stocks: These are excellent for long-term growth but are highly volatile in nature.
  • Bonds: They tend to be more stable and generate periodic income, which is suitable for conservative financial objectives.
  • Mutual Funds and Exchange-Traded Funds (ETFs): Offer diversification and professional management to suit different risk tolerance and objectives.
  • Real Estate: This may provide solid returns and diversification but is capital-intensive and requires property management services.
  • Money Market & Savings Accounts: Low risk, offering stable but modest returns, perfect for short-term savings or emergency funds.

While going through these investment options, you should consider your time horizon and risk tolerance. 

If, for example, you are looking to save for retirement over a long period of time, then stocks or mutual funds could be attractive for their potential growth. 

However, if you are saving money in the near term – say for a down payment on a home – it may be better to use more stable types of investments like bonds or high-yield savings accounts.

Some investments overlap, causing increased concentration within your portfolio. 

Pieper points out that index-tracking investors passively and perhaps unknowingly put a lot of their wealth into a few top companies such as Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), and Nvidia (NVDA) that are heavily weighted within indices.

He told Techopedia:

“Even if beginners do not buy those stocks, they still buy them via ETFs like the MSCI World (like 99% of people here in Germany) or the SPY and QQQ in the US.” 

Understanding what each investment type entails will help you make appropriate choices according to your financial goals. However, there is no one-size-fits-all answer when it comes to investing.

Choosing the right broker largely depends on your investment strategy and requirements. 

Online brokers afford you self-directed stock market investing at a low cost, which suits people who can manage their own investments. For those who wish to invest in high-priced stocks without the funds to do so simply need access to fractional shares from their broker. 

Full-service brokers, conversely, cater to investors seeking comprehensive advice and a range of services like retirement planning and tax strategies in exchange for higher fees. 

Ultimately, the decision between online platforms, fractional shares, and full-service brokers depends on your budget, investment experience, and how much guidance you desire in your investment journey.

Step 4: Calculate How Much You Can Afford to Invest

Till Christian Budelmann, Chief Investment Officer at Bergos AG, encouraged investors to consider wealth and the possibility of hiring professional advisors.

Before you allocate funds towards your investment goals, it’s critical to assess how much you can comfortably invest. This involves a careful examination of your financial situation, including income, expenses, and any debts. 

Crafting a comprehensive budget will reveal the surplus you can direct towards investments after meeting your essential needs. 

The amount you can put into investing will also dictate the style of investing you do and whether it makes sense to use professional financial advice. 

“Of course, that depends on the sum you want or are able to invest – and whether you can afford professional help. 

 

“Beginners can easily get along with an ETF based on the MSCI World.

 

“Wealthy investors should invest actively and focus on ‘quality’ and ‘growth’.”

For newbies, Budelmann suggests an ETF based on global equities as one of the default ways to invest money

Such an investment option comes with built-in diversification and exposure to global markets, which makes it fit for someone looking to test the waters without much market knowledge or enough resources for active stock picking.

However, Budelmann’s advice changes when talking about how to start investing money when you have more of it at your disposal. 

This approach seeks to actively look for opportunities for growth. This usually requires higher financial literacy and access to experts who can help manage your portfolio.

In determining how much you can afford to invest, it’s also crucial when investing for beginners to consider the necessity of an emergency fund. This fund should cover several months of living expenses, offering a financial buffer against unexpected situations. 

Once you’ve outlined your budget and set aside funds for emergencies, you can identify a suitable amount to begin investing.

Step 5: Determine Your Risk Tolerance

Michael Brown, Cross-Asset Market Analyst at Pepperstone, identified three factors to determine your risk level.

You might have heard before that assessing your comfort level with risk is crucial for how to start investing in stocks and shaping your investment strategy. 

But what does assessing your risk tolerance really entail? How can you tell if you’re more inclined towards risk-taking or prefer a risk-averse approach? 

Typically, your risk tolerance is influenced by a mix of factors, including your financial situation, goals, personality, and even your lifestyle and hobbies.

Brown told Techopedia: 

“Perhaps the best place to start is by determining:

 

The total amount you seek to invest

 

The time horizon that you play to keep it invested for

 

How much you would be prepared to lose in exchange for the potential of greater returns

 

“Once these factors are known, an appropriate portfolio can be constructed, tilting more aggressively (i.e., higher equity allocation), or conservatively (i.e., higher cash/fixed income allocation), depending on one’s own tolerance.”

Additionally, your risk tolerance isn’t static; it can change with life’s circumstances, financial changes, or as you gain more knowledge about investing. 

Recognizing where you stand on the risk spectrum is key to making the best investments that align with your comfort level, ensuring a balanced and stress-free journey toward your financial goals.

Here’s a simplified way to gauge where you might fall on the risk tolerance scale based on various traits:

Trait Description Risk Tolerance
Wealth    
High Net Worth Significant disposable income and assets High Risk
Moderate Wealth Comfortable, but mindful of financial constraints Moderate Risk
Limited Resources Limited disposable income and assets Low Risk
Age    
Young (18-35) Early in career, potentially more time to recover losses High Risk
Middle-Aged   (36-55) Established, possibly with more responsibilities Moderate Risk
Senior (55+) Nearing or in retirement, focusing on preserving wealth Low Risk
Lifestyle    
Adventurous Enjoys taking chances and experiencing new things High Risk
Balanced Prefers a mix of stability and new experiences Moderate Risk
Conservative Prefers routine and stability, avoids unnecessary changes Low Risk
Personality    
Optimistic Generally expects positive outcomes High Risk
Pragmatic Realistic about expectations, prefers balanced approaches Moderate Risk
Cautious Wary of uncertainty, prefers safe choices Low Risk
Past-times    
High-Stakes   Activities Enjoys activities with elements of risk (e.g., gambling, impact sports) High Risk
Mixed Activities Enjoys a variety of activities, some risky, some safe Moderate Risk
Low-Key Activities Prefers activities with little to no risk (e.g., reading, playing board games) Low Risk

Step 6: Develop an Investment Strategy 

Charles Henry Manchau highlighted several investing tenets to live by.

Manchau, one of the most widely-followed investment professionals on LinkedIn, identified valuable principles to consider in this process. By incorporating his advice, you can create a roadmap that not only aligns with your financial aspirations but is also grounded in seasoned investment wisdom.

  1. Invest, Don't Speculate

    Investing with a long-term perspective instead of speculating on short-market movements should form the core of your strategy. This approach is hinged on the idea that one should invest in securities based on their capacity to add value over time.

  2. Follow a Barbell Strategy

    Manchau suggests that investors use two divergent approaches to balancing risk and capturing opportunities. At one extreme, allocate some assets in low-risk investments to ensure you have liquidity in the short term. On the other hand, higher-risk stock market investing is for money that is not critical to accrue higher returns.

  3. Long-term Perspective on Risk:

    It is important to recognize that assets such as equities that appear to be risky over shorter periods of time become less so over longer periods of time. Learning how to start investing in stocks requires viewing them as a long-term method to grow wealth, which helps overlook short-term periods when they underperform.
  4. Favor Dollar-Cost Averaging:

    Investing money consistently over time, regardless of market conditions, can reduce the risk of trying to time the market. In this way, fluctuation in purchase prices is smoothed, and it may be more conservative than an effort to forecast peaks and troughs.
  5. Don't Fight Central Banks:

    As one famous investment advisor Martin Zweig once said, “Don’t fight the Fed”. Market conditions are often dictated by central bank policies. By paying attention to this, you will be able to manage market trends better.

    Embracing the principles emphasized by Charles Henry Manchau in your investment plan will help you maintain a delicate balance between growth and risk management.

    Step 7: Build Your Portfolio

    Ray Dalio, billionaire and founder of hedge fund Bridgewater, offered his own ‘model portfolio.’

    Model portfolios are what some investors could consider as their blueprints for how to invest in stocks and other asset classes; they offer an asset allocation containing a blend of securities to achieve diversification. They are designed by financial professionals and make an excellent starting point for individuals new to investing.

    The all-weather portfolio, created by Dalio and popularized by Tony Robbins, is a model portfolio intended to offer the best investments across all economic conditions while managing risk and reward efficiently. 

    The idea behind it is that it can weather any economic storm (inflation, deflation, rising and falling economic growth) without having to predict the future direction of markets.

    The all-weather portfolio typically includes a mix of:

    • 55% Bonds: To give stability and income
    • 30% Stocks: For growth and capital appreciation
    • 7.5% Commodities: For non-correlation with the other parts of the portfolio
    • 7.5% Gold: As a store of value and hedge against inflation

    The All-Weather Portfolio

    Suppose you wanted to invest $1,000 across all these investment opportunities using fractional shares so as not to be limited by the price tag on particular assets. 

    This is how you would allocate investments with the help of the all-weather portfolio:

    Bonds (55% or $550):

       – ETF Example: Vanguard Total Bond Market ETF (BND) – $300

       – Treasury Bonds Example: iShares 20+ Year Treasury Bond ETF (TLT) – $250

    Stocks (30% or $300):

       – Broad Market Exposure:** SPDR S&P 500 ETF Trust (SPY) – $200

       – Dividend Stock Example:** Procter & Gamble (PG) for stable dividends – $100

    Commodities (7.5% or $75):

       – ETF Example: PowerShares DB Commodity Index Tracking Fund (DBC) – $75 

    Gold (7.5% or $75):

       – ETF Example: SPDR Gold Shares (GLD) – $75 

    Using a platform that offers fractional shares is one example of how to start investing with little money. In this theoretical example, you can precisely allocate your $1,000 according to the all-weather portfolio’s percentages, even if individual shares of some assets are priced higher than your investment in that category.

    It’s vital to review and rebalance your portfolio periodically. This means adjusting your holdings back to the intended asset allocation percentages, as market movements can shift the balance over time, causing some assets to weigh more or less than intended.

    Bonus: How NOT to Start Investing

    Charles Henry Manchau warned investors about the biggest pitfalls to avoid. 

    1) Invest without having a long-term plan 

    2) Invest in what you don’t understand  

    3) Being overconfident  

    4) The triple whammy: “Concentration – Liquidity – Leverage” 

    5) Cut the winners and keep the losers  

    6) Think that markets are wrong

    The Bottom Line

    The best way to invest money is by learning how to spread your money across different types of investments to manage risk and aim for growth. 

    The all-weather portfolio by Ray Dalio teaches us to mix bonds, stocks, commodities, and gold for a balanced approach that works in various economic conditions. 

    Even with a small amount of money, using fractional shares can help anyone build a diversified, sturdy investment plan tailored to their own financial goals and comfort with risk.

    Do your own research and always remember your investment decision depends on your attitude to risk, your expertise in the financial markets, and how comfortable you feel about losing money.

    The information in this guide does not constitute investment advice and is meant for informational purposes only.

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    Jasper Lawler
    Financial expert
    Jasper Lawler
    Financial expert

    Jasper cut his teeth on Wall Street as a stockbroker and honed his analytical skills with the City of London's top trading firms. Today, he applies his financial expertise to content creation as the founder of Trading Writers, a niche content marketing agency for the finance sector. Jasper's articles can be found on Techopedia, Seeking Alpha, UK Investor Magazine, Trade2win, Investing.com, FXStreet, Trading212.com, FlowBank.com, and Capital.com. His analysis has been quoted in prestigious publications such as the Financial Times, Bloomberg, Reuters, AFP, and City AM. Jasper's transition from stockbroker to content creator highlights his deep understanding of the financial markets…