You're a beginner investor, ready to make your first investment, but where the heck should you start? If you're confused, it's okay - our investing for beginners guide will help!
Wondering what separates you from the richest people in the world? They own the biggest companies, and you don’t.
The nice thing, however, is that they are willing to sell you a portion of their companies so that you too can enjoy corporate ownership and earn passive income, all without having to spend decades starting your own business.
When you make your first investment in the stock market, you’ll buy shares of a company or multiple companies. That means you own a tiny slice of the company and will reap the reward as the company grows.
And the more you invest over time, the more shares you can acquire, the more ownership you’ll enjoy, and the more returns and compound interest you will receive.
But if it’s your first time investing in shares, you will likely be confused by the options, such as stocks vs bonds, ETFs vs mutual funds, and so forth. Keep reading our guide for beginner investors so you can make your first investment with confidence.
What are Stocks?
The investment class that you are most likely aware of is stocks. Newbie investors typically want to buy shares of the hottest companies, whether it be Apple, Google, Amazon, Uber, and so forth. Those looking to Singapore-specific stocks are looking to rapidly-growing corporations such as Aztech Global, or other conglomerates such as Haw Par Corporation.
But what exactly are stocks? When a company wants to raise a lot of money in order to expand and grow, they sell shares of their company. So a share, or stock, is a piece of ownership in that company.
When you own a share, you can expect to earn income in the form of dividends. Dividends are the payments made by the company’s revenue to its shareholders and are usually paid out quarterly.
On top of that, hopefully, the shares you own increase in value. When they do, your wealth increases. You can either continue holding the stock, or you can sell it for a profit.
No, you won’t become the next Steve Jobs, Elon Musk, or Jack Ma. But you can leverage their work to build your own wealth.
You can invest in stocks through traditional retirement accounts or through an independent brokerage account. You can invest in virtually any company.
However, rather than investing in companies that you are personally interested in, it’s best to invest in companies that show signs of growth over many years or decades.
You can focus your stock portfolio on national companies, such as the biggest blue-chip stocks. But you can also invest in companies around the world to diversify your portfolio, so your investments don’t hinge on any single market.
For example, many Singaporeans like to invest in the top American-based companies that have a global market share. These include companies like Facebook, Apple, Amazon, Netflix, and Google, otherwise known as FAANG. Basically, the companies that most people around the world use on a daily basis.
You can invest in these companies through your local brokerage, or by opening non-local brokerage accounts, such as TD Ameritrade.
What are Bonds?
Bonds are less popular than stocks but just as important. Bonds are essentially loans issued by you to large corporations or government entities.
That’s right, some of the biggest organizations want to borrow money from you. When you buy a bond, it typically includes the loan terms, when you can expect repayment, and how much interest you’ll earn.
Bonds are far less sexy than stocks, as they are fixed investments. That means they won’t explode and earn you millions overnight. They are considered a safe investment to balance your portfolio.
Most bonds aren’t traded publically. So in order to buy them, you’ll probably need to purchase through a broker, or directly through the government entity.
Because of this, it’s important to research before buying a bond to ensure you are getting a fair price, and that you aren’t being overcharged by the broker.
What are ETFs?
Exchange-traded funds (ETFs) are essentially collections of different investments. A single ETF can contain stocks, bonds, and commodities across a range of different companies and organizations.
But it can be bought and sold in the same way as buying individual stocks, making it easy to spread out your investments. You’ll find ETFs that focus on particular nations, as well as global ETFs. You’ll also find some that are industry-specific, as well as those that are diversified.
You can invest in ETFs in much the same way as individual stocks, through your brokerage. You can also use Robo-advisors who typically use ETFs to provide an automatic, balanced portfolio for you at a fraction of the cost of traditional advisors.
What are Mutual Funds?
Much like ETFs, mutual funds are a portfolio of different investments including stocks, bonds, and other assets. And even though mutual funds contain individual stocks, investors forego voting rights in individual companies when buying shares of a fund.
Mutual funds are managed by professional managers who charge an annual fee for the fund. They are responsible for buying and selling in order to maximize returns for the fund’s shareholders.
Since these are actively managed funds, they are more expensive investments to hold. But the diversification and hands-off management for shareholders are often worth it.
Most traditional retirement accounts focus their investing on mutual funds. You can also buy into mutual funds through online brokerages.
And because mutual funds act as a standalone company, you can invest in funds directly through the companies that create the funds.
Best Strategy for a Beginner Investor
When it comes to investing, there isn’t a perfect strategy. It all depends on the type of investor you want to be, how much you plan to invest, and how much risk you can tolerate.
Those looking for hands-off investing are better off investing in mutual funds or ETFs, that give you a balanced portfolio, yet only need to buy one or two funds.
But the financial nerds among us who enjoy doing their own research and love interpreting the market on their own will get a lot of satisfaction from investing in individual stocks.
“How much money should I invest in my first stock?” Again, there’s isn’t a singular answer. The best thing you can do is determine a monthly investing budget. Each month, buy more shares of the funds or stocks you have chosen and watch your wealth grow over time.
Make Your First Investment
Unfortunately for you, the best time to start investing was 20 years ago. But luckily for you, the next best time to get started is today.
Stop wasting your money on new shoes and start purchasing shares of companies so you can become wealthy. Make your first investment today. In a few years, you’ll be glad you did.
Looking for more investment tips and ways to make extra money? Check out some of our other articles today.