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The beginner’s guide to investing in 8 simple steps

Investing is something many financial advisors and institutions advise when it comes to building wealth. However, the world of investing, shares, dividends and stocks is one that confuses most people. Being that it’s a money-growing concept so widely recommended, we thought it was time to consults the finance professionals and ask them for tips and advice that will help a beginner get on their way to investing.

The beginner’s guide to investing: in 8 simple steps

1. Assess your disposable income

“First things first, take the time to sit down, look at your expenses and assess whether or not you can afford to invest right now,” says AMP financial advisor Mark O’Leary.“Using your budget, determine how much disposable income you have and what portion of that you can put towards an investment. Disposable income is what money you have left over after rent, taxes, repayments, utility bills, etc.”

AMP financial adviser, Mark O’Leary says a good way to determine this is to calculate how much money you’re able and willing to live without over a five year period. As the market is so volatile, you need to be prepared for the possibility of losing your investment. Remember: there are risks attached to investing as returns aren’t always guaranteed. You could make money, break even, or even lose money should your investment decrease in value.


 2. Investment goals

Once you know your current position and how much you can afford to invest, you should have a clear cut reason for why you are investing. Is it for a house? A comfortable retirement? Mark O’Leary, AMP financial advisor, says this “why” will then help to inform how long you’re able to invest and what level of risk you’re willing to take on.  “Thinking about these things is important because if you have a short-term goal, for example, you may prefer to invest in assets that are lower risk and that give you easier access to your money, such as a high-interest saving account.”

3. A three-pronged approach

When starting off, Mark suggests applying a three-pronged approach to investing:

  • Start early: “It may seem obvious but the earlier you start investing, the more time your investments have to grow.”
  • Invest Regularly: “Similarly, the more regularly you add to your investments, the quicker they may grow.”
  • Reinvest the returns you make: “If you’re investing for a long-term goal, putting any income or interest you’ve earned from an investment straight back into that investment, could also further boost your wealth.”

4. Time in the market over timing the market

“It’s important to understand time in the market versus timing the market. Even experienced investors struggle with determining the best time to enter or exit a market, which is why staying in the market could see you reap the benefit of longer-term trends.”

“You may be tempted to sell out of an investment when it begins to underperform, although investors who remain in the market may be best placed to reap the rewards than those who pull out. In these cases, your time in the market is more important than timing the market.”


5. Consider a multi-manager approach

“Multi-manager portfolios combine the investment management skills of a number of specialist investment managers to build diversified investments. This approach aims to minimise risk by spreading your investments across different management styles and expertise, which can help to safeguard your investments, particularly in fluctuating market conditions.”

 6. Diversify your investments

“When it comes to high-risk investments, the saying “don’t put all your eggs in one basket” rings true, which is why some people opt for a diversified investment portfolio.Diversifying can help prevent loss as your money is split amongst a range of different investments, you’ll be less exposed to a single economic event.”

“For example, if you have investments in both property and shares, your share investments are less likely to be affected because of downturns in the property market.”

7. Use dollar cost averaging

“Do you know what difference it can make when you invest a single lump sum compared to regularly investing smaller amounts over a period of time? Dollar cost averaging is an investment strategy that involves making numerous smaller investments – as opposed to all at once – designed to reduce risk by spreading it out across market cycles. The idea behind dollar cost averaging is you may be able to reduce the market risk of investing your money in a single transaction during what could be an expensive time to buy in.”

8. Seek Advice

“When it comes to investing, it pays to do your research and gain a broad understanding of the types of investments you’re interested in,” says Mark. “There are a number of different investment types and investment vehicles you may be considering as part of your investment plans, as such, it’s a good idea to speak to your adviser to ensure you’re across any tax and legal implications, and other factors like whether fees, or minimum or maximum contributions are involved.”

Any advice given is general only and has not taken into account your objectives, financial situation or needs.  Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.


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