Fundamentals of Investing Intro Guide

Welcome to our comprehensive guide to mastering the fundamentals of investing.

We know that investing can be intimidating, but it’s an important part of building a secure financial future.

Luckily, with this guide, we’ll take you through all the basics, so you can start investing with confidence.

But before we dive in, we’d like to remind you of some essential financial steps you should take before investing.

First, make sure you have a solid budget in place I have an article here to create a budget that works for you.

This will help you keep your spending in check and ensure that you have money to put towards investing.

Additionally, it’s crucial to build an emergency fund to protect yourself in case of unexpected expenses or job loss.

Once you have those financial foundations in place, it’s time to start thinking about investing for the long term.

And that’s where this guide comes in.

We’ll cover everything from the different types of investments to the importance of diversification and risk management techniques.

By the end of this guide, you’ll be equipped with all the knowledge you need to confidently start investing in your future.

And if you’re ready to start, we recommend checking out M1 Finance.

It’s a great platform for beginner investors, with no account minimums and the ability to build a custom portfolio.

Click here to learn more about M1 Finance.

So what are you waiting for? Let’s dive into the world of investing together.

What is Investing?

Investing is the act of putting your money to work in an effort to make a profit.

The goal of investing is to use your money to earn more money over time.

It’s important to note that investing is different from saving.

When you save your money, you simply set it aside for future use.

When you invest, you’re putting your money to work in an effort to earn a return.

Personal Anecdote:

When I first started investing, I was 19 and overwhelmed with all the options available.

I didn’t know where to start, so I just put my money in a savings account and I saved and saved.

It wasn’t until I learned about the benefits of investing that I decided to take the plunge and wished I had done so earlier.

Types of Investments

As you explore the fundamentals of investing, it’s essential to understand the various types of investments.

From stocks to real estate, discover the pros and cons of common investments:

Here are some of the most common types of investments:

Stocks

Stocks represent ownership in a company.

When you buy a stock, you become a shareholder in that company and have the potential to benefit from its profits and growth.

However, stocks can also be risky, as their value can fluctuate based on a variety of factors, including the company’s financial performance, market trends, and overall economic conditions.

Fact: According to a study by JP Morgan, from 1950 to 2020, the S&P 500 had an average annual return of 9.8%.

Bonds:

Bonds are essentially loans made to companies or governments.

When you buy a bond, you’re lending money to the issuer in exchange for regular interest payments and the return of your principal when the bond matures.

Bonds are generally considered to be less risky than stocks, as their value is typically more stable.

Fact: According to a study by Vanguard, from 1926 to 2020, the average annual return of US bonds was 5.1%.

Mutual Funds:

Mutual funds are a type of investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other assets.

By investing in a mutual fund, you can gain exposure to a wide range of investments with relatively low fees.

Personal Anecdote:

When I first started investing, I was overwhelmed by the sheer number of investment options available.

I found that investing in mutual funds was a great way to simplify my portfolio and gain exposure to a wide range of investments.

Exchange-Traded Funds (ETFs):

ETFs are similar to mutual funds in that they offer exposure to a diversified portfolio of investments.

However, unlike mutual funds, ETFs are traded on an exchange like stocks.

This means that you can buy and sell ETFs throughout the trading day at market prices.

Fact: According to a study by BlackRock, from 2000 to 2020, the average annual return of US ETFs was 7.9%.

Real Estate:

Real estate can be a great investment option for those looking for steady, long-term returns.

This can include investing in rental properties, flipping houses, or investing in real estate investment trusts (REITs), which are companies that own and manage real estate properties.

Humor: They say that investing in real estate is all about location, location, location.

But if you’re like me and don’t have the budget to invest in a beachfront property, don’t worry.

There are plenty of other ways to invest in real estate, like investing in REITs or buying a rental property in an up-and-coming neighborhood.

Fun Lil Data Fact:

According to a study by Fidelity, over a 30-year period, stocks have provided an average annual return of 9.8%, while bonds have provided an average annual return of 5.5%.

Investing Strategies

Once you’ve chosen the types of investments you want to make, you’ll need to decide on an investment strategy.

Here are some of the most common investment strategies:

• Value Investing: Value investors look for stocks that they believe are undervalued by the market.
     They believe that these stocks will eventually rise in value as the market recognizes their true worth.
• Growth Investing: Growth investors look for stocks that are expected to grow at a faster rate than the overall market.
     They are willing to pay a premium for these stocks in the hopes of earning a higher return.
  
  
• Index Investing: Index investors invest in index funds, which are designed to match the performance of a particular market index.
     This strategy is popular among investors who want to achieve market returns without taking on the risk of trying to beat the market.

Personal Anecdote:

When I first started investing, I didn’t have many options in my TSP and did not know I had invested mostly in Bonds.

Needless to say, my portfolio didn’t do very well.

It wasn’t until I switched to the C Fund which tracked the S&P 500 index that I started to see real returns.

Risk Management

Investing always comes with risk, but there are ways to manage that risk.

Here are some risk management techniques to consider:

• Diversification: Diversification involves investing in a variety of different assets to spread your risk.
     By diversifying your investments, you can reduce your exposure to any one asset or market.
  
  
• Asset Allocation: Asset allocation is the process of dividing your investments among different asset classes, such as stocks, bonds, and real estate.
     By doing this, you can balance the risk and return of your portfolio.
  
  
• Stop Loss Orders: A stop loss order is an order to sell a stock if it drops to a certain price.
  This can help limit your losses if a stock starts to decline.
     However, it’s important to note that stop-loss orders can also lead to selling a stock too early before it has a chance to recover.
  
  
• Dollar-Cost Averaging: Dollar-cost averaging is an investment technique where you invest a fixed amount of money at regular intervals, regardless of the price of the investment.
     This can help reduce the impact of market volatility on your portfolio.
  
  
• Risk Tolerance: It’s important to understand your own risk tolerance when investing.
  Some people are comfortable with high-risk, high-reward investments, while others prefer low-risk, low-reward investments.
     Understanding your risk tolerance can help you choose investments that are right for you.

Investing for the Long Term

One of the key fundamentals of investing is recognizing investing as a long-term game.

Although there may be chances for short-term gains, the most prosperous investors focus on the big picture and invest for the long term.

For the past five years, I’ve utilized M1 Finance to invest, and their service has made the process seamless.

With the ability to establish a deposit schedule that suits my needs, their platform also enables me to auto-invest, making investing even more accessible.

Here are some tips for investing for the long term:

• Start Early: The earlier you start investing, the more time your money has to grow.
  Even small investments made early on can have a significant impact on your portfolio over time.
  
  
• Stay the Course: It’s important to stick to your investment strategy and not be swayed by short-term market fluctuations.
  Trying to time the market or make frequent trades can hurt your returns in the long run.
  
  
• Rebalance: As your investments grow and change, it’s important to periodically rebalance your portfolio to ensure it stays aligned with your investment goals.

Conclusion

Investing doesn’t have to be daunting when you master the fundamentals of investing.

With the right types of investments, risk management techniques, and a long-term approach, you can attain financial success.

Don’t wait any longer to start investing – watch your money grow over time.

Happy investing!

Remember, investing is not a get-rich-quick scheme.

If you want to get rich quickly, buy a lottery ticket you have a 1 in 13,983,816, That’s 1 shot in almost 14 million!

But if you want to build real wealth over time, investing is the way to go 100% of the time!

Just be patient and don’t panic when the market goes through its inevitable ups and downs.

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– Investing On The Go