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Thread: An Introduction to Investing in 5 Simple Steps

  1. #1
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    An Introduction to Investing in 5 Simple Steps

    5-minute introduction to investing to put you in a position to take the next step. These are the basics you must understand before investing your cash.

    Saving money in a bank or building society account and receiving interest is one thing, but investing is quite another. People choose to invest their money in a wide range of assets, from stocks and shares, to wine, art and even classic cars, and they all have one aim in mind Ė to make their money grow at a faster rate than it would in the bank.

    Many people assume that investing is incredibly complex and that you need to have an in-depth understanding of financial markets before you can take the plunge, but thatís simply not the case. Today, there are plenty of managed investment funds out there that invest your money on your behalf. You also donít need a large amount of money to start.

    There are plenty of resources out there to teach you the basics of investing, such as these videos from the Money Academy. However, we will also provide our own introduction to investing to put you in a position to take the next step.

    Step 1: Get your finances in order
    Before you invest a penny, itís essential you examine your finances carefully and calculate exactly how much money you have to spare. An investment should not come at the cost of savings. You should only invest if you have enough savings in place to cover all your expenses for six months if you were to lose your job. Once youíve taken into account your savings and the cost of any expenses, youíll then know how much you have to invest. This can be a single lump sum or an amount every month.

    Step 2: Set your investment goals
    You now need to consider your investment goals. Are you going to invest over the long-term to pay for your childís education or to top up a pension? Perhaps you want an investment thatís going to pay you an income every year? There are lots of factors to consider so hereís a little more help.

    Step 3: Understand the risks
    Itís essential you understand the risks of a particular investment. Thereís no such thing as a completely safe investment. Risk and return are intrinsically linked. That means, the higher the risk of an investment, the greater the potential return. However, get it wrong and you could lose all the money you invest. Your attitude to risk will depend on things like your age, your position in life and your personal circumstances.

    Step 4: Research the costs
    Itís equally important to research the potential costs of investing, as there can be expenses thatíll eat into your returns. Different investment strategies will have different costs associated with them. If you choose to go for a managed fund, you will usually have to pay a monthly or annual fee as a percentage of your investment. If you buy and sell your own stocks then there will usually be a commission involved.

    Step 5: Choose your investments
    Now comes the exciting/scary bit: choosing the investments that will become part of your investment portfolio. If you know nothing about stocks and shares then it is a good idea to go for a managed fund where an expert will manage your money for you. They will spread your investment across shares in a range of companies to reduce the risk. You may also choose to invest in other asset classes such as cash and fixed-income. Doing thorough research is essential before you make any investment, and, if youíre not really sure what youíre doing, you should always seek professional advice first.

    Are there any important steps missed out? Please share your thoughts in the comments section below.
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  2. #2
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    We wrote a pretty in depth E-book to help new people out and get them started on the JSE with a holding your hand approach.


    100% free of course.
    The JSE Investment and Finance Forum -
    JSE Investing Chat Group

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    Nice article. Thank you for share information about investing.

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    Yea the most important thing is to keep eyes on the costs (management fees etc) and being consistent year after year after year ! ETF's are nice and low cost

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