Mr. Smith invested $100 dollars in the SP500 index fund every month since 1985. From the age of 37 until last year, when he was 73, the total amount of money he had invested was: $44300 but with the annualized return of 10.301%, the final value of his investment portfolio was $443 535.6 which means he gained around $391 719.59 just by taking $100 out of his income every month.
This is the power of investing and in this post you will find a step by step guide that will help you to start investing as well.
Build Your emergency Fund
Before you start investing, it is very important that you understand that this activity has some financial risk, but there’s a way of preventing you from going broke: building an emergency fund!
And emergency fund is meant to cover your expenses for a specific period of time, ideally from 6 to 12 months in case you lose all your money investing on certain assets.
You can use our free spreadsheet template available here and understand how much you need to save before starting investing.
Once you have that money, you are ready to start!
Choose a Trading App and Create an Account
You now need a way of buying and selling stocks (or crypto, if that’s your goal!) and for that you need an trading app – which is a platform that you will use. Some are free to use but charge you a percentage in every transaction, others require you to pay to use but don’t charge anything and you can do as many transactions as you want!
Some examples of brokerage apps you can find online are:
- Merrill Edge;
- Interactive Brokers IBKR Lite;
All these options have no fee for U.S stocks and usually have very interesting offers for new users. Don’t forget to read all the information available on their websites before creating your account.
Have a Plan
If the first thing you do after creating your account is buying all the stocks you see in your home page, you’ll go broke soon. That’s why it is important for you to decide what strategy you’ll adopt for your portfolio. You can decide what your investing profile is, from conservative investor to aggressive investor and the what changes between on profile and the other is the kind of assets you have and the risk-return ration that your portfolio has. For instance: a portfolio that only has 100% of private equity has a higher risk-return ration than a portfolio that invests only in SP500.
If you are doing your first investment, try to go for something that will be easy to manage and study – yes, you need to study the assets you’re buying! We provided to our fellow investors on the Pro Investor Program a spreadsheet that allows you to see if an asset is cheaper than it should be – meaning, people should buy it! – or if it is expensive – and people should wait for it to go down.
Some things you need to analyse when deciding what kind of investor you want to be are: your income, the percentage of your income that you will be investing every month, the kind of assets you want to buy (crypto, stocks, index funds, private equity…) and your goals!
Consistency is Key!
You have everything you need to start investing and reach your financial goals! Now you just need to be consistency and keep investing, always studying the assets you are buying and understanding clever ways of investing your money reducing risk and increasing returns!
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