How to start investing with zero experience

Investing can be a scary and intimidating subject. It often tends to be seen as something that not everyone can do. While this might have been the case years ago, the investing landscape has changed enormously and has become much more accessible nowadays. Anyone willing to learn can start investing. We created a short guide to help you start investing and bring your possible barriers down.

1. Learn the basics of investing
2. Set your goals and timeline
3. Decide which risk appetite you want to adopt
4. Choose the right type of investment
5. Select which platform to invest on

1. Learn the basics of investing

Before you start investing it is important to understand the basics of investing. Knowing the most common concepts, strategies, the psychology behind investing, and simply understanding how the investing world works are essential. A great way to start learning is through books. We compiled a list of 4 possible resources to use to get a grip on these topics.

1. The Intelligent Investor – Benjamin Graham
2. Beating the Street – Peter Lynch
3. The Behavioural Investor – Daniel Crosby
4. Broke Millennial Takes On Investing – Erin Lowry

2. Set your goals and timeline

It is important to ask yourself why you want to start investing before taking any next steps. You should have a clear idea of what your investing goal is and by when you want to achieve it. Maybe your goal is buying that car you have always dreamt of? Make sure that when you set your goals and timeline you stay realistic with regards to how much you invest, over which period of time, and your chosen risk appetite.

3. Decide which risk appetite you want to adopt

Choosing the right risk appetite when starting to invest can be a difficult thing. Nonetheless, it is also a crucial part of your investment plan. You should ideally first pay off your short-term debts before you start investing and also have established an emergency fund before you start investing. Then, you should ask yourself what your expected rate of return is and the risk you are prepared to take for it. Usually, your risk depends on the type of investment you make, the time horizon in which you can keep the money invested, and the level of potential loss you can accept. You need to make sure that you find the right balance between these factors to get your desired risk appetite. You should always ask yourself for how long you can invest your money, if you can afford to have a loss, and if yes, which maximum potential loss you can accept. Only when you are sure about those kinds of questions, you can invest having a clear strategy in mind. Another element you should take into consideration is your age. The younger you are and the sooner you start investing, the higher the probability you will reach a significant return over a long investing time horizon (and vice versa). Keep in mind that in this case, you should consider taking equity exposure rather than monetary/fixed income in order to maximize your investment’s expected return. The idea is that the longer your investment period is, the more you should focus on the expected return. On the other hand, the closer you are to the end of your investment period, the more you should be interested in the stability of your portfolio, to avoid suffering a severe drawdown when getting close to liquidation. As you approach the end of your holding period, you should progressively decrease your investment risk by rotating your portfolio from equity to fixed income instruments.

In general, you should also try to diversify by investing in a variety of different asset classes or by investing in investment portfolios that have a high level of diversification within a single product. This will allow you to not only manage your risk better but also expose you to more opportunities for return.

4. Choose the right type of investment

Investing often tends to be associated with putting your money in the stock market, but there are many different types of investments. Only once you know which options you have, you will be able to make a smart decision on what kind of investment you want to make. Below you can find a short list of the most common types of investments for beginners that you should be aware of.

1. Buying shares on the stock market means you invest your money in shares of a publicly-traded company. These companies are available on stock exchanges, such as the NYSE, Euronext, or LSEG. It is important to mention that as the economy’s future is very unpredictable, this makes the stock market a rather volatile environment, and often a risky investment. With potential gains always comes potential risks.

2. ETFs (Exchange-traded Fund) are becoming an increasingly popular investment for new investors because of their lower risk. ETFs are baskets of securities traded on the stock market that anyone can invest in. The benefit of ETFs is that you can invest small amounts while building a diversified portfolio. Another plus is that you can trade throughout the day at a low cost, resulting in rather high liquidity.

3. A mutual fund is a professionally managed fund that invests in securities. The capital that backs these investments comes from many investors. Each investor can decide how many shares or units they want to invest in and share the profits and losses of the fund in proportion to their investment. Mutual funds are managed by experts in return for a management fee. The risks associated with mutual funds vary greatly depending on the type of mutual fund. Some examples of mutual funds are index funds, target-date funds, and fixed income funds.

4. Bonds are a type of fixed-income investment. This means that you loan your money typically to a corporation or government, so they can finance their projects. Bonds usually have a maturity date, which means that at a certain point the debtholder has to pay back the investor. During that time you usually periodically receive an interest payment on your loan that tends to be fixed.

5. Select which platform to invest on

Once you have decided what type of investment to take on, you should start researching which platform to use to start investing. The number of options regarding investment platforms is increasingly growing. This gives you a lot of flexibility in choosing the most suitable platform for you. Investment apps are becoming very popular and are a great way to start investing. Especially younger generations tend to lean more and more towards these financial apps as they want to take more control of their personal finances in a safe and easy manner, without the interference of traditional banks. Some European investment apps we recommend checking out are Beewise, Degiro, Etoro, Revolut, and Ovalmoney.

Once you have a clear idea of what your investment strategy is you can start investing. Here, patience truly is the key. Especially if you decide to take on a long-term investment, it could take a while before you start earning your desired profits. In the meantime, it is important to remain patient, avoid rash decisions, and keep your emotions in line while you keep researching and learning on a regular basis. When it comes to investing in the stock market, the market never stands still and this means investing is a never-ending learning process that will continuously keep you on your tiptoes.