Check out the 5 Simple tricks to start investing from scratch today.
Searches on how to invest in the stock market, insecurities, or in bitcoins have skyrocketed on the Internet. Although it seems like a risky action, which it is, it is also possible to invest wisely.
In this sense, building an emergency fund and improving our financial education are the key steps we must take before starting to invest.
Of course, investing is still risky. We must not fall into the mistake of thinking that, because it is now easier to invest than before, the risk of this activity has disappeared. If we are going to take the step, we have to keep in mind that, although our objective is to increase our assets, we can lose money.
In any case, where to start? What are the first steps we must take? Here are five tips to start investing from scratch.
1. Build an emergency fund
Before starting to invest, it is important to build an emergency fund that allows us to face unforeseen events. Experts recommend saving the money equivalent to the daily expenses that we would have for a period of three to six months. Thus, in the event of, for example, becoming unemployed, we would have an emergency mattress to pay for our basic needs.
In any case, in addition to building an emergency fund, it is important to never invest the money that we are going to need in the short term. Let’s not forget that we can end up losing our investment, so it is not a good idea to risk the money needed to pay the mortgage, household bills, or shopping basket.
2. Improve your financial education
It is convenient (or rather, essential) to learn how the markets work and how the products with which we are going to operate work, whether they are shares, investment funds, cryptocurrencies, or any other asset.
There is a basic rule that we must not forget: we should never bet on a product that we do not understand. In this sense, all banks will test us so that we know exactly what we are investing in and what our profile is (risky investor or not).
Also, some financial assets are very complex and risky, so they may not be suitable for a novice investor. Some online brokers allow you to open demo accounts to trade with fictitious money; a simulation with which we can learn and implement different strategies without putting our capital at risk.
Having a legitimate broker is key to making a profit through investments.
3. Define a strategy
We must decide how much money we are going to invest, what is our time horizon and what is our objective. Depending on this, we can establish one strategy or another. For example, if we want to save for retirement and we are very young, we will probably be able to take more risk than if we approach retirement age, at which time our priority will probably be to preserve capital. Once our strategy is defined, we should try to stick to it, although, logically, we can readjust it if our needs change.
It is also important to analyze our risk tolerance since this variable will determine the most convenient assets for us and the distribution of our portfolio.
In general, the greater the risk that we are willing to assume, the greater the expected return.
4. Hire a legitimate broker
To invest we will need to go to an intermediary, be it an online broker, a bank, a cryptocurrency exchange, etc. It is important to check that it is an authorized and legitimate entity and not a financial beach bar.
Also, we must review the commissions that it charges and compare its prices with those of other companies.
In addition to their fees, we must check if the broker allows us to invest in the assets and markets that interest us since not all brokers allow trading with the same products.
Investing carries risks. If the operation does not go as expected, we can end up losing money.
A strategy to reduce the risk of our portfolio is to diversify, that is, to invest in different assets, sectors, markets… If we bet all our capital on a single card and in the end, it turns out that we do not obtain the expected result, all our money will suffer, while if we invest in different assets that are not closely related to each other, we can compensate the losses that we may have on the one hand with the profits.