How to invest: a step-by-step guide

Everyone’s investment journey will look a little different. Factors such as your risk tolerance and financial goals play a big part in building your strategy.

However, you can take some simple steps to get started and better understand how to invest your money.

Give your money a goal

A good starting point is to establish your short-term and long-term investment goals. Once you have a clear picture of where you want to be, you can start putting an effective plan in place to get there.

Understand your risk profile

We all have different risk profiles; knowing yours is essential. Your risk profile will help shape where you invest your money.

For example, someone with a high tolerance for risk may decide to go all in on equity-based investments. On the other hand, someone who is a little more cautious may balance out their portfolio with other assets and spread the risk.

Decide how much to invest

You only want to invest what you can afford. The money you are planning to put in the stock market should be separate from your emergency fund and money that you may need at short notice.

Remember, investing is a long game, so the money should be money that you are happy to remain locked away for a while. A good rule of thumb, and one that most experts suggest, is to stay invested for at least five years.

With this in mind, decide how much you are comfortable investing and not accessing those funds for the foreseeable future.

Where to invest

The next step is to pick your investments that align with your goals and risk profile. You will also want to consider asset allocation at this point.

Asset allocation refers to the different types of assets you invest in that make up your portfolio. This is important because some assets respond to the market in different ways. You may have one investment that is performing well and one that is not doing so well.

This is where things can become a little tricky, especially if you are new to investing. For advice on investments and the best approach for you, speaking with a professional is recommended.

Adjusting

As you go through life, your goals, financial situation, and circumstances change. Your investments must continue to align with these changes.

Also, the market itself changes, and you may need to adapt for your portfolio to remain profitable. That is why revisiting and refining your strategy is essential for portfolio management.

The points above give you a general overview of the steps you can take in your investment journey. They are not set in stone because everyone’s journey is different. Now we have an idea of how to get started, let’s look at some of the finer details.

What are some popular investment options?

The choice for investors when it comes to options and combinations is seemingly endless. To help simplify things, let’s take a look at some of the most popular options:

Stocks

Also known as equities, stocks allow you to buy shares in a company, effectively making you a shareholder. Typically these types of investments are purchased and sold on stock exchanges worldwide.

Stocks tend to have the highest returns of any asset class. However, they also come with a much help level of risk.

Bonds

Bonds, or fixed income products, are essentially a loan. The two main types of bonds are company and government bonds. When one of these entities borrows from you in the form of a bond, they promise to pay it back with interest.

While they may not generate the same level of returns as stocks, bonds are seen as one of the after investments.

Mutual funds

Mutual funds are a mixed basket of investments. With mutual funds, you can invest in a range of assets such as stocks and bonds, all at once. These can be beneficial as they save you from picking individual stocks.

Funds are either passive or active. Passive funds track the performance of the market, while active funds aim to outperform the market.

Exchange-traded funds (ETFs)

ETFs are similar to mutual funds, allowing you to invest in a wide range of assets at once. The difference is that ETFs can be bought and sold on a stock exchange like a regular stock can.

Where you put your money will very much depend on your investment goals and risk tolerance. Funds make it easier to create a diverse portfolio, a strategy that helps spread risk. However, some may prefer having the control of picking individual investments.

Property

Property is often one of the most popular options when it comes to modest returns on your investments. Traditionally, property is seen as a fairly safe investment option as prices tend to increase year on year. You can read more about buy-to-let property investments on our blog.

Non-Fungible Tokens (NFTs)

NFTs are a relatively new option to the investment world and are purely digital assets with unique prices. You may have heard of some classic YouTube videos being sold as NFTs, as the value of some of these can potentially be enormous. Time will tell if NFTs are a viable investment option.

Digital Currencies

By now you would have heard about how digital currencies like Bitcoin and Ethereum are taking the investment world by storm. Digital currencies are a high-risk option and can be extremely volatile, however these options have been touted to potentially be the future of investing.

How much do I need to start investing?

People often think there is a high cost that comes with investing. However, this is not always the case.

While some funds have higher minimum deposit requirements of around $1,000-$5,000, some start at $0. The lower initial deposit lets a new investor dip their toes in the water and get a feel for investing in stocks or other assets.

Generally speaking, there are two ways to invest your money – regular amounts or as a lump sum.

Lump sum

Depending on your financial situation, you may have some spare cash that you would like to commit to investing.

A lump sum can be a small or large amount that you invest in one go. Of course, you can add to this by committing more down the line. Alternatively, you could set up a regular monthly investment amount.

Although this investment style may suit some people, it can leave your capital at risk. For example, a dip in the markets could see your investment get off to a bad start.

Regular amounts

Investing a regular amount each month is an excellent choice for new and seasoned investors.

Adding an affordable regular amount each month can help you avoid some of the pitfalls associated with lump-sum investing. Because you are drip-feeding money over a period of time, your investments won’t be hit as hard by market fluctuations. This is also known as pound/dollar-cost averaging.

You don’t need to pick just one of the above methods and stick with it. You may choose to mix and match how and when you invest your money.

When it comes to investing your money, you might want to consider the 60/40 rule.

Costs and fees of investing

You should be aware of fees before you start investing. The costs involved will depend on several factors, such as how you invest and your chosen platform.

Some platforms do not require minimum deposits, but they may charge an annual management fee. For example, passive mutual funds generally see lower returns than active funds, but their costs are lower. This is because active funds use a fund manager to outperform the market, which brings an added cost.

Another thing to be aware of is trading costs.

There are usually trading fees involved when buying and selling stocks. This can be a set cost, or the broker might charge a commission on the trade. It’s worth bearing this in mind, especially if you plan to buy and sell often, as this could prove costly.

Investing with Holborn

Whether you want to find out how to invest in Dubai or the global markets, Holborn Assets can help.

For more than 20 years, our team of expert advisers have worked successfully with clients to create robust portfolios built to withstand any financial climate.

The investment advice we provide can help you cut through the financial jargon and build an investment portfolio that meets your needs and goals.

Simply fill out our quick form to learn more about how Holborn Assets can help you with your investments. We’ll be in touch to get you started on your investment journey.