Read This Before Investing in 2024!
So, let’s say you want to get started with this investing thing. You might have a bit of money saved. It’s probably not enough for a house, but you decide you should probably invest it in something. You could invest in stocks, shares, equities, government bonds, corporate bonds, real estate, foreign exchange, crypto, NFTs, Futures, Fine Art, watches. There seems to be tons of stuff out there, and you might have even seen those ads on YouTube from the gurus talking about day trading and trading foreign exchange and how you could make money in that way through investing. And on top of all of this confusion, there’s the very real fear that you might lose all of that money that you’ve worked so hard to save up. So, in light of all of that, I decided to write this article: The Ultimate Guide to Investing For Beginners.
Why and How to Invest Your Money in Stocks and Shares
We're going to split this article up into four parts, which are going to be time-stamped down below so you can skip around if you feel like it.
Part one is going to be about the basics and the philosophy behind investing.
Part two is about why and how to invest your money in stocks and shares.
In part three, we're going to be addressing common fears and questions and concerns about investing, like what if I lose all my money?
And then, in part four, we're going to talk about fast lane investing, which is an alternative approach to the traditional investing thing to build wealth.
Part 1: The Philosophy and Basics of Investing
So, let's start by talking about what is the point of investing. The point of investing is for your money to be able to make more money. Let's say you start off with a thousand dollars that you've saved up through your hard-earned labor. Now, you could put that money under your mattress, or you could put it in a bank current account. But the problem with that is that there's this thing called inflation that you might be reading about in the news. So, your thousand dollars might be able to buy you a MacBook Air right now, but a few years from now, when inflation goes up, that MacBook Air is going to cost twelve hundred dollars.
And so, over time, your money loses its purchasing power, which is why you want to ideally invest in something. Because when you invest in something, your money grows magically on its own. More on that later. And that means you can combat the effects of inflation. And that brings us to the next question, which is how does the money magically grow in the first place?
Generally, the philosophy behind investing is that you buy something now, and that something makes you more money over time. And there are two ways in which the thing that you buy can make you more money. Let's say you buy a house. It costs a certain amount of money to buy a house right now. But there are two ways the house makes you money. Number one, you can rent the house out, and so you're getting rental income every month. And secondly, hopefully in theory, the value of the house will also rise over time.
Part 2: Why and How to Invest Your Money in Stocks and Shares
If you hadn't bought the house and you just had that money sitting in a bank account, over time, you're going to be losing money because inflation is going to eat away at your savings. Now, houses are an interesting example because you get rental income, and it's very easy for us to imagine what that looks like. Everyone pays rent, and so you're making money. But with most other asset classes, you don't have this equivalent of rental. Instead, a lot of these things you're buying, and then you're hoping that you can sell them for a higher price over time.
The main exception to this is some stocks and shares, which we're going to talk about a little bit later in the article. And these asset classes is a long list of things that you probably have heard of, but you might not be entirely familiar with. You know, we've got stocks, shares, and equities, which are kind of the same thing. We've got hedge funds. We've got index funds. We've got bonds—government bonds, corporate bonds. You might have heard some people investing in watches and then fine arts. You've probably heard of people investing in crypto and even gaining lots or losing lots. In my case, losing quite a bit of money because crypto has crashed recently.
And a lot of this can get very complicated quite quickly. And so we're going to simplify things. And for the rest of this article, we're going to talk about investing in stocks and shares because that is the main kind of investing that normal people like you and me can unlock fairly easily. You don't need to have large amounts of money, which you need to invest in a house. You don't need to take on huge amounts of risk and gambling and stuff like you need to do with crypto. And you don't need to be an accredited investor or anything like you need to invest in ancient investing companies or all this fun stuff. So, stocks and shares are kind of the basics of investing. And usually, when people talk about investing their money, what they're referring to is, "I want to buy some Tesla or I want to buy some Netflix or I want to buy some Amazon." And so, we're going to talk about that.
Part 3: Common Fears, Concerns, and Questions About Investing
So, if you're broadly very unlikely to lose money because Vanguard collapsed overnight, but you might lose money if the value of your investments goes down. And this is where people get really, really worried because they always think, "Ah, you know if I invested my hard-earned cash into these stocks and shares, what if it goes to zero? What if I lose my money?" Now, this is a common fear. And certainly, let's say you invested a thousand dollars into the S&P 500 just before the financial crash in 2008. And then the markets crashed by, I don't know, 60 or whatever it was. And so now, your thousand dollars is worth like 400.
I know you're thinking, "Oh my God, like I can't believe I've lost 60% of my money." Now, if at that point you sell, now you have realized the loss. Now you've literally lost money because you bought the thing for a thousand, and you sold it for 400. But if you had held onto that investment, if you just kind of kept it in there, held onto it and waited for the markets to recover, now in 2020, that same thousand dollars would be worth 3,000 or whatever. And so, you wouldn't have realized the loss. Now, the fact that it's down from 1,000 to 400 only matters if you're selling at that point. If you don't sell, if you just hold onto it, then it's paper losses. It's not realized.
And this is why long-term investing is often the key here because the markets go up and down. And if you're going to panic and sell every time the markets go down, then you're probably going to lose money. But if you just hold onto your investments, then, over the long term, you're probably going to do okay. And so, don't panic if the value of your investments goes down because it's probably going to go up again at some point.
Part 4: Fast Lane Investing - An Alternative Approach
Finally, we're going to talk about fast lane investing. Now, this is a bit more advanced. So, we're going to cover the basics, but you might not want to dive into this straight away because this involves picking stocks and shares and trying to be Warren Buffett and trying to beat the markets. And it's quite tricky to do. Now, the traditional approach to investing, which we talked about earlier, is kind of the slow lane. You buy a diversified portfolio of assets, and then you wait for the magic of compounding to do its thing. But the fast lane is a bit different.
The fast lane involves trying to pick the best-performing stocks and shares and trying to beat the market. And it's a bit like trying to find the best horse in a horse race. You're trying to pick the winner, and if you pick the right horse, then you can make a lot of money quite quickly. But if you pick the wrong horse, you can also lose a lot of money quite quickly. So, it's higher risk, higher reward, but it's also a lot more effort. You have to research companies, you have to understand the stock market, and you have to actively manage your investments.
So, those are the four parts. And just one final point before we conclude, which is that this is a beginner's guide to investing. So, if you're already a seasoned investor, if you're already making money through the stock market, if you're already a multimillionaire, then this article is probably not for you. This is for the average person, like you and me, who maybe has some money saved up and is thinking, "Hey, what do I do with this money? How do I invest it? How do I grow it over time?"
So, with that said, if you want to increase your wealth, if you want to have more money, then you need to find a way for your money to make money for you. And this is where investing comes in. The idea behind investing is that you take your hard-earned money, and you put it into something that has the potential to grow in value over time. And as that thing grows in value, it's making you money without you having to actively work for it. So, it's this idea of putting your money to work for you, rather than you having to work for money.
The key takeaway here is that the purpose of investing is to build wealth and to make your money work for you.
You put your money into assets that have the potential to grow in value over time, and in return, you aim to build wealth and generate a return on your investment. It's a way to make your money work for you and create financial opportunities beyond your active working hours.
Each type of investment comes with its own set of risks and potential returns. As a beginner, it's crucial to understand your risk tolerance, investment goals, and time horizon before diving into the world of investing.
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