20 investing tips for beginners that can set you on the path to financial freedom.
Times have certainly changed, and although we’ve long been in the era of personal and financial empowerment – especially for us women – one crucial area is still largely being ignored: investing.
One financial regret I have is that I did not start investing early enough. I really wish I’d started much earlier.
I found various reasons not to invest, from not having enough money to make significant investments to finding investments complex and confusing. I wish I had thought more about the future rather than living in the moment.
Investing early can pay big dividends. If you are not investing, you are losing a tremendous opportunity to grow your money. If you don’t believe me, let me tell you a story.
The Tale of Two Sisters
I once heard this story of two sisters, Prudence and Extravaganza, who started investing at different times. At the age of 18, when she left school, Prudence started investing £100 each month at an average interest rate of 8%, for 20 years, and then stopped.
Twenty years later, at 38, Extravaganza began investing £100 each month, just like her sister, for 27 years, with the hope that she would catch up with her.
At the age of 65, they compared their investments and returns over the years. Who do you think did better? And why?
Although Extravaganza invested £32,400 compared to Prudence who invested £24,000, Prudence had £566,854.11 in her investment account while Extravaganza had just £134,994.73.
Prudence, who invested earlier, ended up with a significant amount more. Why? If you start saving at age 38, you’ll need to save almost twice as much money monthly as if you had started at 25.
The story of the two sisters illustrates the power of compound interest and the importance of starting today.
The later you start investing, the more you’ll have to save to reach the same goal, and the less time compound interest has to work to grow your money.
Here are my top tips to help you get started.
20 Investing Tips for Beginners
1. Know What You Want and Why
The first and most vital step is to set clear financial goals and calculate the amount needed to fund each goal. Understanding what you want will help you invest in line with your true values and give you the motivation to work towards your goals.
Think about it:
What would you want to save and invest for – a new home, retirement or to build wealth? Make your own list of inspiring goals that are most important to you.
Related: 7 Reasons You Need to Set Financial Goals
2. The Best Time to Start Investing is Now
Did you know, the earlier you start investing, the less it actually costs you? Tomorrow, tomorrow, tomorrow… There’s always a reason to put off what you don’t want to do today.
Start saving and investing as soon possible; don’t wait until you’ve paid off your debts to start investing. This will motivate you and get you excited about your financial future. I really wish I had started earlier.
3. Think Long-Term and Harness the Power of Compound Interest
‘Rome wasn’t built in a day’, so the saying goes, so you can set your sights on a long-term ambition and steadily work towards it, watching your money grow over time.
Investment is a long-term game, so the longer you give yourself, the better your money will work for you – thanks to compound interest. It’s also easier to weather the inevitable storms when you take into account your overall long-term goal.
If you get into the habit of working towards future goals, rather than taking the ‘quick fix’ in life, you will be amazed what it can do for your finances, mental discipline and strength.
There will be bumps in the road. Markets can – and do – go down as well as up, but if you are focused on the long term, you are bound to be a successful investor.
Check out our articles on compound interest.
- The Power of Compounding and Why It Pays To Start Saving Now
- Make Your Money Do the Hard Work
4. Understand Your Risk Appetite
Investing is all about finding a balance between risk and return. Are you a conservative, balanced or adventurous investor? The key to being a successful investor is to work out how comfortable you are with the different risks and then tailor a portfolio according to your risk profile and goals.
If you are risk adverse, simply doing this will reduce the probability of having sleepless nights due to huge fluctuations in your portfolio.
So determine how much risk you are willing to take, and remember that there is a strong relationship between risk and return.
Simply put, the greater the risk, the higher the potential return, and the lower the risk, the lower the potential return for most investments. Ask yourself: How much risk can I deal with and how much risk can I afford to take?
5. Get Educated
Each investment you make brings its own risks and rewards, and to make smart money decisions, you need to be well informed.
Knowledge is power. As you learn to invest, it will boost your confidence, help you overcome the fear of investing and set you on a path to financial independence.
If you don’t like to read, you have options. Listen to podcasts, get on audible.com and start listening. If you need some guidance, get an expert opinion and attend money seminars where you can learn about investing.
Here are some of my favourite books on investing to help you get started.
One Up On Wall Street for an absolute beginner
- The Essays of Warren Buffett: Lessons for Corporate America
Smarter Investing: Simpler Decisions for Better (for a UK perspective)
- The Intelligent Investor
- The Little Book of Common Sense Investing
6. Start Small and Invest Regularly
When it comes to investing, it doesn’t matter how little you have, what matters is to get into the habit of putting an amount away regularly. You’ll be surprised how little you miss these amounts and how quickly your money builds up.
Investing regularly will also help you take advantage of compound interest and pound-cost averaging.
What is pound-cost averaging?
Pound-cost averaging simply means investing small amounts regularly rather than one lump sum. With small contributions each month, your money soon gains momentum and starts to snowball. For example, as a regular investor with a £50 monthly contribution:
- you strengthen your investing muscle;
- you can buy more shares when the market is falling;
- you avoid the need to time the market;
- you keep the value of your investment intact during market fluctuations.
7. Take an Interest in Compound Interest
Starting to save now means you’ll get more for your money further down the line. As interest accrues on your savings, the rate of return always increases; a 5% interest rate delivers more than a 40% return over ten years.
Related: What is Compound Interest?
8. Never Put All Your Eggs in the Same Basket
You can best protect yourself against the unexpected by spreading your savings across a variety of assets and investments.
That way, you know you’ll always have financial security, whatever happens. This strategy is called diversification, which simply means not putting all your eggs in one basket.
Remember: never put all your eggs in the same basket.
9. Be an Instant Investor
Set up a standing order to pay yourself first each month so that a fixed amount is automatically put into your investment account the second you receive it, before you do anything else.
Automatic savings like this provide an effortless yet effective way to start investing. It’s not being boring – it’s giving your future the financial success you deserve.
10. A Word of Caution on Saving
Saving is not the same as investing. Savings are great for your short-term goals like building an emergency fund, paying down debt or saving for a holiday.
On the other hand, investing is a long-term game that will help you grow your money to meet your long-term goals, such as:
- buying a home;
- building wealth;
- paying for your children’s education;
- saving enough for a secure retirement.
If you are only saving and not investing, you’re losing an incredible opportunity to grow your money, build wealth and attain financial freedom.
There are basically two ways to make or grow your money:
- Work for money;
- Make your money work for you.
Option 2 is my favourite by far, where your money makes more money for you so you can achieve your financial goals more quickly.
And if you are still not convinced, inflation is another reason to invest your cash. Although inflation might seem like a joke today, it’s a true enemy to your cash.
Inflation can affect the value of your savings, and if you are not investing your money you are going to lose so much money in the long term in cash savings.
So what is inflation?
Inflation is when the prices of goods and services, such as food, utilities and clothes, increase over time.
For example, the value of a tenner today may not be worth the same in the future. According to the Office of National Statistics, the price of a loaf of white bread was 34p in 1980 and £1.05 in 2018. What a huge difference!
11. How to Start Investing If You’re Broke
If you have no money to invest, find something you love doing, like arranging flowers, designing dresses, or writing.
Then consider taking up a part-time job at a flower shop, or a designer boutique, or an online newspaper. It’ll still be your hobby, but you’ll get paid for it and you can put the money towards an investment. Your future self will thank you for it!
Not having money to invest is not a valid reason to put your financial future at risk. Here is a story of a 96-year-old secretary who amassed a substantial fortune. If she can do it, so can we!
And remember: It is not how much money you invest that matters. With a small contribution each month, your money soon gains momentum and starts to snowball.
12. Don’t Invest in Any Product You Don’t Understand
Warren Buffett sums it up: “Never invest in a business you cannot understand.” This is a particularly important point to remember when investing.
Keep your investments simple. Before you invest, be sure to understand what you are investing in. Review each investment carefully to make sure you understand it.
The best approach to understanding an investment is to ask questions and do your own research when necessary until you understand.
You should never feel stupid or let anyone talk you down just because you are asking questions. Keep asking until you understand – how else will you learn?
Likewise, never invest in something that is too good to be true. If you do not understand it, don’t invest your money, especially on those investments with a promise of high returns.
13. Watch Out for Investment Fees
Annual management fees, taxation and other expenses can reduce your returns.
Consider buying passive funds as they are generally much cheaper than buying active funds as there is no need to pay a professional to manage your money. And don’t forget to read the small print and avoid these hidden costs if you can.
14. Beware of Yourself
Yes, you. We can all be our own worst enemies, as many of us are more inclined to act emotionally than logically – our emotions can ruin our ability to stick to our financial plans and goals.
For example, we all feel more confident when markets are high and fearful when markets start to fall. This means we commit our worst investment mistakes by buying when markets are high and selling when they have fallen.
Making informed decisions can be tricky during a market downturn. If you need help staying on course or making informed investment decisions, seek help from a financial advisor.
15. Protect Your Savings and Investments from Tax
When you start, invest in one of the tax wrappers such as an ISA, a Lifetime ISA or a pension. You can start a regular savings plan from as little as £50, or with a £1,000 lump sum with Fidelity Investment ISA. Capital at risk.
16. Review Your Investment Regularly
It is important to monitor and review your investments and investment objectives regularly. Financial goals evolve over time, so you should ensure your portfolio is still in line with your personal goals, values and risk tolerance.
Reviewing your portfolio is just another way to make sure you are staying on top of your investments. The truth is that what you don’t review goes backwards, and not reviewing your portfolio is comparable to blindly entrusting your money to others.
Don’t assume everything is okay.
Trust me, blindly trusting others to manage your money is a huge mistake that can lead to poor money management and lost opportunities. I’ve met many who have been badly affected by this, and many talented celebrities have gone bankrupt as a result.
So make an appointment on your calendar to review your investments at least once a year.
17. Use the ‘Rule of 72’ Before Investing
The ‘Rule of 72’ is a simple way to find out the approximate number of years it will take you to double your money at a given rate of return.
For example, if you invest £1,200 today with an annual interest rate of 12%, using the ‘Rule of 72’ you can calculate how long it will take to double your money by basically dividing 72 by the annual interest rate of the investment, i.e. 72/12 = 6.
This means your investment will double in six years. Your £1,200 today will double to £2,400 in 6 years, then £4,800 in 12 years, etc. Isn’t that amazing? Your money starts growing at an exponential rate over time.
18. Leave Your Portfolio Alone!
Investing is like planting a seed: you cannot keep pulling it out to check its progress. Avoid the temptation to look at your investment portfolio too often. Just leave it alone and let it grow.
19. How to Start Investing Today
Here are two simple ways you can start investing with very little money today.
- Invest your spare change. You can start investing your spare change today with the Moneybox app, which rounds up your purchases to the nearest pound and invests the spare change in blue-chip companies such as Amazon and Netflix.
- Invest from £1. You can start investing with as little as £1 with Wealthsimple, a digital investment platform that will help you build a diversified portfolio in minutes. You can sign up for Wealthsimple from your phone or your computer.
- Invest from £50. You can start a regular savings plan from as little as £50, or with a £1,000 lump sum with Fidelity Investment ISA. Click here to start investing today.
Better still, join me and our other experts next month at the ‘Who Fund the World?’ event, on ‘Investing: Tips from Women, for Women’, to ask all your burning questions about investing. Click here for more information – see you there 🙂
20. Stop Procrastinating
Money is power, and power is key to gender equality. It is time to start leveraging your income to build wealth so we can make a difference in our society.
You won’t be able to invest and build wealth by just reading this article, nodding sagely and continuing as normal. Start today – action cures fear!
Are you investing? Share your best investing tips for beginners with us.
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