Getting started with investing is certainly an intimidating prospect. When you invest your money in something, you want to be sure that it is at least somewhat safe, and that you are putting it in an investment that will earn you the best return for your hard earned dollar.
Investing well takes time and knowledge. It’s important to learn as much as you can about where you are putting your money. You do this to avoid getting cheated, to ensure proper diversification of your money and to be sure to get a good rate of return.
I often suggest to people who are just getting started to do lots of research before making any sort of long term commitment with your money. In America, there is an excellent magazine aimed at the beginner through intermediate level investor. Money Magazine is cheap, easy to find at a local bookstore and contains a wealth of good tips on investing and money management. You can start with zero knowledge about financial issues and Money gives you a good place to start.
Doing research online is also a good place to learn the basic of different types of investments. Oddly enough, wikipedia is not a bad resource for learning the basics of Money Markets, Certificates of Deposits, Mutual Funds and the like. I have found wikipedia articles to be somewhat dry and technical however.
Once you are familiar with the basics of different investment options, you can start planning your personal investment strategy. You need to decide several things before you begin. First, how much money do you have to invest? Are you going to be able to add to your investment over time, or are you starting with one big lump sum (not as likely)? Knowing how much money you have to invest effects your strategy in a number of ways. Many investments take a minimum amount to get started. For example, mutual funds often have a minimum investment of several thousand dollars. Similarly, real estate investment takes a reasonable amount of cash up front to get going.
Next you need to look at your investment time line. How long to you plan on investing for? For most people just getting started, it’s safe to assume you are young and will be investing for the long term, which is generally over a period of more than five years. This makes a difference as some investments are geared as short term places to stash a little cash, while others are intended as places to put your money for several years or longer. An example of a short term investment would be a Certificate of Deposit for a three or six months. You buy these at a bank. When you do, you agree to put your money in the CD for a fixed time, during which you cannot get it out, but it earns interest, which will be given to you along with the starting amount at the end of the term. They can be bought for periods as short as three months, or as long as five years.
Investments that take a longer term outlook would include real estate, many stocks and most mutual funds. There are too many variations on each of these investments to go in to each in detail here, but these are generally considered investments you should plan on sticking with for at least a year, if not much longer.
The last important step to consider when getting started with investing is how much risk you are willing to take. Risk can have a profound impact on what you invest in and what sort of return you make on your investment. Generally, the more risk you take, the more you are likely to make. Of course, with greater risk comes a greater chance that you could loose the money you started out with as well, so beware! High risk investments for rookies include most stocks and many mutual funds (although not all). I wouldn’t suggest anyone make a significant investment in real estate without doing A LOT of research. Safer investments would include interest bearing bank accounts (which are so safe they are insured against loss), money markets and CD’s (not the music kind).
I said it before, but I’ll repeat myself at the end. A successful investor does not just wake up in the morning knowing where to put their money. You must educate yourself by doing a lot of research before you commit your money to anything significant. Read reputable magazines such as Money – talk to people who are knowledgeable investors. Make a plan. Once you have a basic idea of what you are doing, you will be well on your way to building wealth. Best of luck!