The 2023 finance bill has been a topic of discussion on news platforms, social media spaces, and in households. You have probably had this discussion with your colleagues by the watercooler, shaking your heads, asking each other where the country is headed. It has been mentioned more than once that the bill has the potential of wiping out the middle class. In this article, we will provide you with an investment guide for beginners that you as a startup professional can use in your journey toward financial freedom!
Investment Guide for Beginners in 2023
In May, the inflation rate surged from 7.9% to 8% with the prices of food and non-alcoholic drinks causing this upward pull and with this new bill, the inflation rate is projected to continue increasing. This basically means that our purchasing power as consumers will decrease, and the rate of our economic growth will drastically slow down.
The question here is how do you ensure that you multiply your money such that even if the finance bill is passed or not (and inflation increases), you will still have purchasing power?
Let’s take a look at the investment guide for beginners that you as a startup professional can adopt in 2023.
1) Passive investing
Have you ever heard of Warren Buffet? Chances are, you have.
But just in case you haven’t, Buffet is one of the most successful investors to ever walk the earth. The reason his name surfaces every time the term “investment” is floated is that he did the most remarkable thing when he was 11 years old; he bought his first stock. And when he was 13 years old, he filed taxes for the first time.
Now, of course, we can hardly compare ourselves to a son of a U.S. Congressman but we can rip a page from his investing book. Warren started learning about investments when he was a child and years of growing his wealth has made him a reliable guide in this field.
When it comes to investing, you can either be an active investor or a passive one. An active investor conducts research and analyzes data regarding various assets and companies while a passive investor buys a security so that they can own it long-term. Unlike active investors, passive investors are not focused on benefiting from market timing and short-term price fluctuations.
Warren Buffet advises members of the public to invest passively as their money will be protected from general market fluctuations, and for investment beginners, passive investing is generally easier than active investing.
Passive investing normally winds up in investors purchasing shares in mutual or index funds. Buffet advises investors to buy shares in index funds so that they can diversify their holdings in various companies and most key industries while having purchased a single asset. If you are a beginner in the world of investing, you can consider becoming a passive investor.
2) Consider exploring mutual funds or money market funds
The crippling fear that every beginner investor has is losing their money. You have probably heard of horrific tales surrounding people investing their hard-earned money in various assets only for them to lose it all. Of course, you want to grow your money but you do not want to become a referral figure every time people talk about how risky investments are.
If this describes you to the tee, then you should definitely consider mutual funds.
Mutual funds are a type of investment that allows investors to pool their money together. These collective funds are then invested in different securities such as real estate, bonds, and stocks. Investing in mutual funds guarantees diversification which will, in turn, help you get maximum returns on your investments.
The advantages of investing in mutual funds include;
1) You are able to quickly convert your investments into cash.
2) Contributing every month helps investments to grow over time.
3) Comes with professional investment managers
There are a number of mutual funds out there and it is important that before you dip your toes in this pool, you conduct thorough research on which securities/assets suit you. Examine the degree of risks involved and when in doubt, consult a finance expert.
Money market funds
So, money market funds are similar to mutual funds. The difference is, the money you pool in money market funds will be invested in low-risk investments such as government bonds and treasury bills. These types of investments are low risk and therefore, will yield low interest. On the upside, the money you initially invested will always be secure even when there are fluctuations in the market.
What you are at risk of losing is your interest.
If you are looking to enter into investing, you should consider starting with money market funds and familiarizing yourself with the investment realm before moving forward to riskier investments.
3) Do your research
We live in a tech-enabled world where information is on our fingertips. Before choosing an investment option, conduct thorough research.
Say for instance you have decided to kick off your investment journey with trading and you are looking to buy stocks. You should get as much information as you can on the company you are choosing to buy shares in. Ask yourself, is this company paying dividends? How much are these dividends going for? What are their financial projections ? When it comes to picking a company’s stocks, you need to either conduct a fundamental or technical analysis.
Conducting a fundamental analysis involves assessing the factors that could affect a company’s share prices. You can achieve this by going through the company’s financial statements, finding out how management works in the given company, and determining the company’s position in the market. Doing this type of analysis helps you learn whether the company has underpriced or overpriced its shares.
A technical analysis, on the other hand, analyzes the movement of the company’s shares over the years. The trends and charts that are available can be helpful when it comes to forecasting the prices of shares and their movements in the future.
Bottom-line is, before selecting a type of investment, do extensive research.
4) Diversify your investment portfolio
Markets are pretty much volatile and diversifying your investments increases your chances of reaping high returns. Different investments respond differently to the same market climate.
Before diversifying your portfolio, ensure that you have determined your risk tolerance level. Are you a risk taker ? How much of a hit can your finances take if there is an economic recession? After doing this, conduct research on which investment options fit your risk tolerance level. It is only after completing these two tasks that you can go ahead and invest in bank products, stocks, annuities, bonds, treasury bills, emerging trends, etc.
Again, if you feel lost on which options best suit you, seek professional advice from a financial advisor. After assessing your risk tolerance level, the two of you will find an investment option that will grow your wealth and get you one step closer to achieving financial freedom.
5) Become financially disciplined
As mentioned above, markets are not exactly stable. You will wake up one morning and discover that you lost your interest or a given company’s stocks have dipped. This does not necessarily mean you should instantly pull out and cut your losses. Remember, these big names in the investment industry or the general finance sector did not make their fortune overnight. Learn to be patient and to have realistic expectations.
Once you come up with an investment plan, stick by it. Try not to be tempted by every new, shiny investment opportunity that promises instant wealth.
Now, in case you have missed this particular advice throughout the article; when in doubt, seek help from a finance expert.
Also, doing your own homework by going online and researching the benefits of particular investments will help you make a smart decision when it comes to investments.