Every entrepreneur dreams about a life of freedom and flexibility. We don’t want a life that’s run by someone else’s clock; we want to create our own schedule.
But then we get caught up with all the demands of running a business: managing clients, handling the finances, marketing…oh yeah, and actually doing the job. Soon, our dreams of an easygoing life are swept away by the “rise and grind” culture.
What if I told you there’s a way you can take some stress off your plate so you can enjoy the life of freedom and flexibility you dreamed of?
If the world of finance intimidates you – like it’s something for fast-talking guys in black three-piece suits – then don’t worry. I’m going to break down everything you need to know about the stock market and explain how to start investing today.
Are You Ready to Invest?
Before I dive into how to start investing, let’s start with the basics. Are you in a place financially where you can start investing?
In our five step roadmap to build wealth, we lay out four things you need to do before you start investing: spend less than you make every month, pay off high-interest debt, build up an emergency fund, and save for retirement.
It’s important to take care of these things first, because they’ll stop you from making money from your investments. For instance, if you spend more than you make or have high-interest debt, then investing is like bailing out a sinking boat with a bucket that has a hole in the bottom; you’ll never be able to get ahead because you’ll always be losing money faster than you can make it. If you don’t have an emergency fund or retirement savings, then you may need to pull from your investments instead of letting them grow.
The good news is that if you’ve already completed these four steps, you are ready to invest!
Know Your Investment Options
All right. Now that you’re in a place where you can invest, let’s go over some of the popular investment options:
Bonds: You can lend money to the government, and a bond is their little IOU with interest. It’s not a very high-reward investment (about 3-4% with inflation) on average, but it’s also very low risk; you are almost guaranteed to get your money back.
Stocks: Stocks are small pieces of a company. On average, stocks have about a 10% return (realistically, it’s closer to 7% because of inflation), which is one of the highest rates of returns you can make on an investment. Unfortunately, that’s because stocks also carry the highest risk.
Index Funds, Mutual Funds, and Exchange-Traded Funds (ETFs): Index funds, mutual funds, and ETFs are bundles of stocks that are chosen for you. Mutual funds focus on a specific segment of the market; for instance, the S&P 500 is an index fund that invests in the 500 biggest publicly traded companies in the U.S.
Target Date Funds: If you’re just starting to invest, this is the best option for you. Like a mutual fund or ETF, a target date fund consists of a mix of stocks and bonds, but the great thing about target date funds is that they automatically lower the risk as you get older.
Tips for Successful Investing
You can’t just dive into investing. To make the most of your investments, you need a strategic plan.
- Start early
The biggest investing mistake people make is not doing it. They get caught up in confusing terminology and the variety of options and put it off.
But the most important component of investing is time. The more time your investments have to grow, the bigger your return will be. So, get started ASAP!
2. Diversify your investment portfolio
You don’t want to put all of your eggs in one basket. Investing in single stocks is extremely risky because if the business doesn’t do well, then you lose money.
One of the reasons mutual funds, ETFs, and target date funds are such a great investment option is because they automatically diversify your investments for you.
3. Pay attention to costs
Investing apps, financial advisors, and the expense ratios on investment funds all charge fees, and they range anywhere from $1 a month to 1% of your assets.
You have to be careful with fees, because they can eat away at your returns. As a general rule, never pay more than 0.3% in fees across all your investments.
4. Do not pull out your investments
People tend to panic when the market drops and often remove their money. But historically, the market has always recovered.
One final thing – congratulations!! You are on your way to living with more freedom, opportunity, peace, and joy. If you have any more questions about how to start investing you should check out this free training, Think Like an Investor, where Dow Janes co-founder, Laurie-Anne King, explains how she went from $40,000 in debt to making $1,000s from her investments every month.
Best of luck!