Investments for Beginners: learn how to start investing safely and confidently

Summary:

1. Reviewing the previous step;

2. Getting to the point...;

3. 6 practical tips to start investing;

4. Conclusion;

5. What's your opinion?;

6. Comments section.

Reviewing the previous step

In our previous post, we discussed the importance of building and maintaining an Emergency Fund. Now that you know how to safeguard yourself from unforeseen events, it’s time to learn how to make your money work for you. But where do you start? In this guide, we’ll explore basic concepts and best practices for those who want to dive into the world of investing.

Get ready to understand the fundamental principles and start your investment journey on the right foot!

Getting to the point...

Why invest?

Investing is a way to:

• Protect your money against inflation.

• Build wealth over time.

• Achieve financial goals, like buying a house, traveling, or ensuring a comfortable retirement.

If you’ve ever wondered, “Why not just leave my money in a savings account?” the answer is simple: there are more profitable and secure options to grow your money, such as Treasury Bonds or bank-issued Certificates of Deposit (CDs). For instance, while a savings account typically yields around 0.5% per month, a CD could yield over 1% monthly, depending on the financial institution.

6 practical tips to start investing

Discover easy-to-apply strategies, real-life examples, and efficient practices that will transform how you approach investing.

1. Know your investor profile

Before investing, it’s essential to identify your investor profile:

• Conservative: Prioritizes safety and avoids risk. Investment examples:

  • Treasury Bonds: Ideal for those seeking liquidity and security.

  • CDs with daily liquidity and FDIC insurance: A secure and convenient alternative.

• Moderate: Accepts some risk for better returns. Investment examples:

  • Multimarket funds: Combine fixed income and equities for balance.

  • Mortgage-Backed Securities (MBS): Offer good rates and tax advantages.

• Aggressive: Focuses on high returns, even with significant risks. Investment examples:

  • Stocks in innovative sectors: Such as technology and renewable energy.

  • International ETFs: Like SPY, which tracks the S&P 500 index in the U.S.

If you’re unsure about your profile, free online tools can help you assess it. This step is crucial to selecting the right investments, as aligning with your profile minimizes risks and maximizes returns, avoiding future frustrations.

2. Set clear goals

Ask yourself:

• What is my goal with this investment?

• When will I need the money?

For example:

• Short-term goal: Traveling in 1 year.

• Long-term goal: Retirement in 20 years.

With these answers, you can choose investments that match your timeline and risk tolerance. For short-term goals, opt for low-risk options like Treasury Bonds with daily liquidity. For long-term objectives, stocks or Real Estate Investment Trusts (REITs) can deliver higher returns over time.

3. Start with the basics: Fixed income

If you’re a beginner, it’s advisable to start with fixed-income options, such as:

• Treasury Bonds: Perfect for those seeking safety. Example: Treasury Inflation-Protected Securities (TIPS), which protect your money against inflation.

• Certificates of Deposit (CDs): Offer higher yields than savings accounts. Prefer those with FDIC insurance, which protects your money up to $250,000 per institution in case of bank issues.

• Mortgage-Backed Securities (MBS): Tax-exempt and attractive for those looking for better returns without complex taxation. For instance, an MBS with a yield of 3% annually can be a great choice for new investors.

An efficient strategy is to start allocating a portion of your monthly income to low-risk securities while learning about other investment options. For example, invest 50% of your reserve in Treasury Bonds and 50% in daily liquidity CDs to diversify and gain experience.

4. Diversify your investments

“Never put all your eggs in one basket.” Diversification helps reduce risks and optimize returns. Here are some suggestions:

• Combine fixed income (Treasury Bonds) with variable income (funds or stocks). For example, by investing in stocks of solid companies in sectors like banking or energy, you can leverage long-term market growth. This strategy allows fixed-income gains to provide stability while stocks offer higher return potential. For beginners, starting with ETFs like SPY can be a simple and efficient way to participate in the stock market without picking individual stocks.

• Invest in different sectors or geographic regions as you advance. For instance, consider investing in international stocks to seize global growth opportunities and mitigate local crises. Global ETFs like VTI are a practical way to access diverse markets.

• Explore multimarket funds that blend various asset types, such as fixed income, currency, and equities, offering a balanced strategy to reduce risks and achieve better returns.

For instance, you might allocate 70% to fixed income and 30% to variable income, adjusting based on your profile and experience. Beginners can start with 90% in fixed income and gradually shift toward ETFs, which are a straightforward way to invest in the stock market with controlled risk.

5. Common mistakes to avoid

Avoid:

• Investing without financial education: Read, research, and learn. A good tip is to follow financial blogs and books like “Rich Dad, Poor Dad”. We also recommend following our blog, which offers practical and in-depth content to help you understand the investment world in a simplified way.

• Following unfounded tips: Trust only reliable sources, such as recognized experts, reputable books, and well-established financial institutions. Before following any advice, research to ensure there’s concrete evidence backing the information. For example, if you hear about an investment promising “guaranteed high returns in no time,” be skeptical and verify if it’s registered with regulatory bodies like the SEC. Remember: if it sounds too good to be true, it usually is. Solid investments require time and planning, not shortcuts.

• Ignoring fees and taxes: Always analyze the cost of each investment. For instance, mutual funds may have high management fees that eat into your earnings. These fees include an annual management fee percentage and, in some cases, performance fees applied to profits above a certain benchmark. Additionally, consider taxes like capital gains tax, which follows a tiered structure (15% to 20%, depending on the holding period). To minimize costs, choose funds with management fees below 1% per year or explore tax-exempt alternatives like municipal bonds. This way, you protect your earnings and optimize results.

Some brokers offer CDs with zero fees, while others charge commissions. Research before deciding and prefer brokers with a good reputation and free services.

6. Strategies to start with little money

• Use low initial investment options: In Treasury Bonds, for example, you can start investing with less than $50.

• Invest regularly: Set a fixed monthly amount and invest consistently. This practice, called dollar-cost averaging, helps build discipline.

• Try micro-investment apps that allow you to invest spare change into diversified portfolios.

For example, if you invest $100 monthly for 5 years in a CD with a 10% annual rate, you’ll accumulate over $7,000 by the end of the period. With an ETF like SPY, you can participate in the performance of major companies at an affordable cost. Soon, we’ll publish a dedicated post on ETFs to help you better understand this investment option.

Conclusion

Starting to invest is the first step toward transforming your relationship with money and securing a more stable financial future. Remember: starting is more important than getting everything perfect.

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In the next article, we’ll explore the limitations of savings accounts and when they might still be a viable option. You’ll understand why diversification is so crucial. Don’t miss it!

So, did you like the tips? Share your experiences and questions in the comments!

Share your experience with us! If you have any questions, want to know more about investments for beginners or simply want to talk about it, feel free to leave a comment! And don't forget to check out our blog for more tips and information on finance!

What's your opinion?

Comments section