I often hear from people that they don’t know where to get started in investing.
Does this feel like you?
Well, let’s have a look at some of the best tips I have received in my investing career and I’ll add my personal perspective as well.
You see, there are mountainous volumes of tips on investing, I’m sure you have done some research already only to be overwhelmed…
The issue is they tend to miss the most important first step of the process.
The best investing tip I have ever received is one I was able to put into practice immediately.
It is simply to ensure your security or to protect your well-being in the short term. Sound advice for these times, right?
But what does that mean you say?
Unfortunately these days most people live from pay period to pay period, with very little in savings for those ‘rainy day’ situations.
This means you are at great risk if something goes wrong in life, like a medical emergency, which prevents you from earning your income. So the most important first step in wealth creation and investing for your financial freedom is to put in place a security measure.
The basic concept is that you want to build a safety net that covers your living expenses for a period of months, and this is up to you, I chose six months. Determine how much money you would need to meet your living expenses, in this case for six months. That is your safety net amount, your emergency buffer.
Now you can build this amount up by saving it, but we have already established that most people are not saving, and would struggle to make this happen.
The alternative approach, and one you can achieve straight away, is to get insurance.
There is a myriad of different types of insurance, so I highly recommend speaking to a broker to assist you to determine your personal needs.
The one that I chose to achieve this important first step to get started in investing, was income protection insurance. This type of insurance covers you in the event that you are unable to work and provides a percentage of your normal wage.
With this step in place, you have the security of knowing that your living expenses will be met in case something goes wrong, and then you can move on to the next step or phase of your wealth creation.
Now you probably haven’t heard that as the first step before, but it is a simple but effective way to get moving forward…
Coaching – To Get Started in Investing
Before you should put any of your hard-earned money into any investments, I highly recommend you get some coaching…
Working with a coach will help you to put together a plan, a personal investment plan.
This plan will be a virtual road map that highlights some key features you should identify before you jump into any investments, such as, what:
- are your financial goals, short and long-term?
- type of risk are you comfortable taking in your investments?
- structures will you need to protect your assets and manage your tax?
- do you need to know about asset classes?
- your mindset is and how to set it for success
An important distinction here, which was the main point I made in the post that you can read here, is that coaching is not about handing over control of your decisions. Instead, coaching is about getting the support and assistance you need to get started in investing or enhancing your existing investments.
You are responsible for your wealth, a coach will help you get to your goals and be your accountability buddy. Coaching is a life-changing experience and a super tip when it comes to investing success.
The best outcome of having a coach, or getting some coaching is that you learn the strategies and processes of success, which you get to keep for the rest of your life. When you hand control of your money and the decisions around it to someone else, you give up that opportunity to learn. If you stop paying, the knowledge goes too. Think about that for a minute, it’s a good lesson to retain.
Now that you have your security sorted and are ready to get started in investing real money, the essential tip that matters is asset allocation.
This doesn’t need to be a difficult concept like some would have you believe.
There are many things to consider when it comes to asset allocation, let’s look at some basics.
First, it is always good advice to invest in what you know.
If property is your thing, start there, if it is stocks, then go there, and if it is neither, cash investments such as term deposits or bonds are fine too.
The key now that you have reached this part of the process is to get in the game.
If you choose to get coaching, skills in investment asset classes are something a coach can help develop with you and guide you to what will help to achieve your financial goals.
This is a topic that can be debated for hours…
But we aren’t going to do that, thankfully.
Simply, diversification requires some simple decisions to be made about how you are going to manage your investment funds over time.
First, you need to determine how much of your available cash flow is going to be invested in long-term assets, how much in the short-term, and how much in cash (the shortest time frame).
The term of the asset class is determined by two factors, the first being how readily it can be converted to cash and the second is how long it needs to be invested to achieve the returns you desire.
For example, property is generally considered a long-term asset as the time to convert a property investment to cash is long and the period of time required to achieve your desired returns is normally measured in years not days.
The second form of diversification is the asset class. Here the distinction is between growth assets, income-producing assets, or both.
For example, term deposits are purely income-producing assets, whereas property is both growth and income-producing.
These decisions will be based on the level of returns you require and the extent of cash flow you need to fund your investments. The key is NOT to get bogged down here. Diversification is something that you can massage as your investments grow. Again, it is more important to just keep investing and being in the game.
As always the most important tip is to take action.
Now that you know the essential tips of how to get started in investing, your task is to implement them.
The sad reality of this simple tip is that most people won’t act. There will be a list of reasons or excuses for why today is not the right time, it could be the markets are too risky now, or there isn’t enough time with work, family, and everything else in life, or it could even be a fear of losing money.
The thing is, none of these reasons will just magically go away, unless you take some form of action, typically action that is different from what you have been doing until this point.
So when I say action is a key ingredient, it really means a different action than what you have been doing. The good news however is that investing is not as complicated as we have been led to believe, so throw yourself into learning and growing your wealth today.
Let me leave you this week with an important distinction:
Assets = Wealth
Income only = Lifestyle
To achieve financial freedom you want to build assets so that in time the income from your investments can cover your living expenses.
That is true freedom and will provide a choice for you to live the life you dream about. It’s not actually the money that you want, it’s the choices and life experiences that it provides. When you focus on these things, the money flows a whole lot more freely.
So get started in investing today, don’t delay.