Starting to invest your money is one of the most important steps you can take towards financial freedom. To help you to get underway, here are five things you need to know before you start to invest.
Investing is an important step to financial freedom.
1. You won’t get rich quickly – it’s a long-term game
Many first-time investors have the belief that experienced investors make a lot of money in a short period of time when investing in the stock market or other asset class. The reality, however, is that no investor gets rich quickly. Whether you are buying stocks, bonds or investing in property, investing is a long-term game where you aim to generate strong and stable annual returns over the course of 5 to 25 years or more.
2. You need to have investment goals
When you first start out, it is important that you know what your investment goals are. Do you want to invest to accumulate a specific sum to buy your first home? Are you investing for retirement? Or do you want to purchase your dream car in five years time? The answer to the question “What are your investment goals?” will determine what asset classes you will invest in and how much risk you will need to take to achieve your investment goals.
It’s important for you to know what investment options you have, how risky they are and how much average annual return you can expect from investing in them. The most common investment asset classes are stocks, bonds, and property, but there are also precious metals, such as gold and silver, currencies, and other commodities, such as oil and natural gas. Having said that, it is generally best to diversify your portfolio by investing in a range of assets.
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4. Fees play a big role, so keep an eye on them
The fees you are being charged by investment service providers, such as fund managers that manage your stock portfolio, for example, have a massive impact on your long-term investment returns. Hence, it is important to compare fees of investment service providers and choose the ones with the lowest cost given the service they provide.
5. The value of your investment may go down before it goes up
The reality is that not all investments will go up immediately and keep increasing in value indefinitely. All markets and financial assets experience what is called market volatility. That means that the value of your investments will fluctuate. If your investment is down a few percentage points in the weeks or months following your purchase don’t despair. Market volatility is normal and shouldn’t really bother a long-term investor.