How Do I Actually Invest Money?

This post is for all my beginner investors.

There you are – kind of interested in investing, have a bit of extra income but not sure how to actually do it. Or even what your options are. There is SO much information out there which can makes things pretty overwhelming! Let me break it down for you in “normal people” terms. I won’t be able to tell you exactly what to do but I can help you figure out what options are available!

OK, so what is investing? How does it actually work?

Let’s get to basics.

When you invest money, what you are doing is either buying a part of a company or an asset with the idea that the value of the company/asset will grow over time. With this definition, as investment could be anything. It could be stocks/shares, a painting, gold jewellery or even a designer bag. I mean, an Hermes Birkin bag outperformed stocks and gold for the last 35 years.

Ruba Khan The Money Marketer

Cool! So how much money can I make with investing?

Unfortunately, investing will usually not make you a millionaire overnight. It is not a get-rich-quick scheme. I would think of it more as a way to grow your current wealth. That being said, you don’t need a lot of money to get started!

Does that mean I won’t be a millionaire with investing?

You will! Just not overnight. To make substantial gains, you need to invest consistently over decades. It takes time to make money. I know, I know – that sounds like a lot of work. It is – at the start. The first few years of investing are tough. After that, your wealth will start increasing significantly due to compound interest and market returns. Let me show you.

Let’s say you have $5,000 right now and decide to invest this, adding $800 a month. You decide to invest in a fund that makes 8% a year. As you can see below, 10 years later it will be worth $157,455. That’s okay, nothing life-changing. The profit you made is 35% of your portfolio.

Ruba Khan The Money Marketer

Now, let’s say you keep consistently investing for 30 years. Your investment will now be worth $1,246,966. The profit you made is 76% of your portfolio. This is why long-term investing is so incredibly powerful.

Ruba Khan The Money Marketer

Where can I start investing?

You have lots of different options to invest your money, I would highly recommend doing extensive research on each type to see which asset is right for you.

When deciding where you should invest your money, you’ve got plenty of options. These options include:

1. The Stock Market

When you buy a stock, you own a small portion of the company you bought the shares in. There are two ways to make profit in the stock market – capital gains and dividends.

Dividends: Think of this kind of like bank interest. When the company makes a profit, they may pay you a portion of this in dividends. How much you receive will be based on the stock, market and number of units you own. This is a great strategy if you are interested in having an extra income stream.

Capital gains: When the value of the company grows over time, the price of their shares go up as well. These shares can then be sold to make a profit. For example, let’s look at my favourite stock – A2 milk. If you purchased $5,000 worth of shares in April 2015 and sold today, it would be worth $137,053 even with the current market drops.

Ruba Khan The Money Marketer

If you’d like to learn how to actually buy a stock – I’ve made a detailed guide on how to do this. Click here.

2. ETF (Exchange Traded Fund) & Mutual Funds

If you want to buy multiple stocks in one go, you can opt for an ETF (Exchange Traded Fund) or a Mutual Fund. The key benefit of doing this instead of buying individual stocks would be diversification which would significantly lower market volatility and risk.

ETF (Exchange Traded Fund): Exchange traded funds (ETFs) is a way to get a return similar to an index or a commodity. These funds provide excellent diversification. You can buy and sell units in ETFs through a stockbroker, the same way you buy and sell shares. Click here to learn how to buy at ETF.

Mutual Fund: Mutual funds are similar to ETFs, however they are managed by professionals. Rather than following an index like an ETF, they pick and choose stocks that they believe will perform well. Keep in mind that mutual funds will often have high management fees so make sure to pay attention to that prior to making your purchase.

3. Investment Bonds

When you buy something called a “bond”, you are lending your money to either the government or a company. The government/company selling the bond will then pay you interest on the loan for as long as you hold the bond.

If you’re an investor that wants a very low risk investment, bonds would be the way to go. That being said, low risk also comes with very low returns. I personally hold a very small percentage of bonds in my portfolio as I am comfortable with risk.

If you’re Australian, you can learn more about Australian Government Bonds here – https://bit.ly/3cRtZ80

4. Savings Accounts

The least risky way to invest your money is to put it in a savings account and allow it to collect interest. However, as mentioned before, low risk means low returns. The risk when putting your money into a savings account is minuscule, but this also translates to your returns.

That being said, ensure that your savings account is giving you an interest rate that is beating inflation so your wealth does not deteriorate. I’ve written a post on this topic, click here if you’d like to know more.

5. Physical Commodities

Physical commodities are investments that you physically own, such as gold, silver, paintings, collectible items etc. These items may go up and value and can be resold at a later date to make a profit.

Of course, there are many more investments out there such as real estate, foreign exchange currency trading, options etc, however these 5 types should help get you started.

And, that’s it! I hope this will give you some idea of how you can actually invest your money. As always, feel free to send any questions through to themoneymarketerblog@gmail.com.

Published by themoneymarketer

The Money Marketer is a financial discussion space to discuss all things money and investment, with a touch of food and lifestyle.

3 thoughts on “How Do I Actually Invest Money?

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