Everything You Needed to Know but Were Afraid to Ask About Investing

There’s no age limit to investing.

You’re never too young or old to invest. You don’t have to be a financial expert, though investing can seem daunting at first. Experts often speak in jargon that may seem like a foreign language.

So get to know the basics first.

Don’t dive headfirst into something you know nothing about. Knowledge is key, as is patience. Don’t expect to make a fortune overnight. High returns come with high risks. Play it safe until you are comfortable.

Make sure that you know what you are getting yourself into. Don’t over-commit, especially without doing your homework first. Try to develop an understanding of financial advisors’ motivations — they might not always have your best interests at heart. Find someone you trust, and as you gain confidence, have faith in your instincts.

Remember, there are no guarantees or certainties in investing.

Many people will tell you otherwise. While it may be tempting to jump on the latest and greatest opportunity, do your homework first, and enjoy yourself. Making money is fun, especially when you don’t have to work for it.

On the other hand, losing money is no fun at all. Knowledge should be your first investment.

So, what are investments?

Investments generate income, unlike your savings account. Your money may be safe in a bank, but it isn’t growing significantly.

Investments are one of the few ways to keep up with inflation. Inflation devalues your money by an average of 3.87% a year. You want your money to grow faster than inflation.

There is always a level of risk with investing. You could make money or lose it. But don’t let that stop you from investing. By the same token, don’t invest any more money than you can afford to lose. 

The jargon

Stocks: By purchasing stock, you are buying a small share in a company. Stocks carry more risk than bonds, meaning greater returns, or losses.

Securities: Securities are tradable financial assets such as shares, bonds and debentures. Debt securities, are money that is owed to us, such as bonds. Equity securities are value we own, such as stocks.

Bonds: Bonds are loans you give out. By buying a bond, you are loaning money to a corporation or government. After a fixed term the borrower must pay the bond back with interest.

Stock market: Stock exchanges buy and sell stocks, which make up the overall stock market. The local stock exchange is the ASX. The main US stock exchanges are the New York Stock Exchange (NYSE), the NASDAQ, Standard and Poor’s 500 (S&P 500), and the Dow Jones Industrial Average (DJIA).

Diversification: Diversification is investing in different types of investments, often referred to as an investment portfolio. Most advisors agree that diversification is key. Having all your money invested in one area can be a big risk. Diversification helps to minimise the risk of big losses, while tapping a wider potential of investment options.

ROI: Return on investment. Basically, how much money you are making on your investments. Dividing an investment’s gains against its cost gives you your ROI.

Getting started

Investing isn’t free. Financial advisors charge fees, either as a percentage of your portfolio or an upfront payment. Shop around and find someone you’re comfortable with.

You don’t have to necessarily choose individual stock options. If you are using a professional, they will use mutual funds to invest in a variety of securities. This allows you to diversify, minimise risk and access investments not available to individuals.

Judge your stock on how it is performing now. Just because it has done well in the past, is no guarantee it will continue to do so. Know when to sell underperforming stock. There’s no point riding a sinking ship all the way to the bottom.

Don’t invest money you may need soon. Keep your savings account for that. If the market drops, it may take time for it to recover, and for you to recoup your investment. Remember, no one can reliably predict how the market will perform. Some people will make money, some will lose money. Good advice on a long-term strategy is key.

You don’t have to be an expert on the investment industry, but you’re never too young or old to start investing. And investing is one of the few ways to beat inflation.

It helps if you understand the basics, and know where to find reliable information. After all, trusting someone else with your hard-earned money isn’t easy. For most of us, relying on a professional is the best option. Look for advice you can rely on to help maximise your returns and minimise your losses.

Get ahead of the game now by finding out everything you need to know but were too afraid to ask about investing. A good way to start is by making sure you are maximising your superannuation nest-egg. If you’re considering switching to a self-managed super fund, you need to read Vern Gowdie’s free report: ‘Self-managed Superannuation: How to know if a self-managed super fund is right for you’ now.

Ryan Clarkson-Ledward is a junior analyst for Markets & Money. Ryan has degrees in both communication and international business. His priority is bringing you the latest price updates on stocks through ASX updates, as well as supporting Sam Volkering with background research. As part of the team at Markets & Money his aim is to provide unbiased and relevant news for readers. Ryan’s work with Sam is designed to provide research that complements Sam’s analysis for small-cap and technology stocks. Together, their objective is to break through all the jargon and give you the hard facts to inform your investment decision-making. Ryan writes for:

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