Many people are scared to start investing. Most of them cite lack of money, mistrust of financial markets or lack of money as reasons (among others) not to start investing.
Of course it is not helpful, that financial institutions try to sell complicated financial vehicles, that the average Joe does not need nor is willing to pay for. Luckily there is some basic investing advice that can help anybody get started.
In order to build wealth for (early) retirement, you need to get comfortable investing. With interest rates at an all time low, there are few places to get the necessary returns to build a nest egg at a reasonable time, with reasonable risk.
Nothing is Risk Free
While any investment will carry some level of risk, you don’t have to put everything on the line to be successful. But keep in mind keeping your hard earned money in a 0% interest bank account will lose money simply because of inflation!
Some of the best strategies balance risk and reward — and it’s probably easier to achieve than most people think. Here are five tips to start investing:
1. Start investing with your retirement accounts
The easiest way to begin having your money work for you is through tax incentivized retirement accounts. In Switzerland these 3a accounts are a great vehicle to start investing. The yearly contributions to these special accounts can easily be done (ex: monthly). The contributions are tax deductible and if a self-balancing, index-fund strategy is chosen, then it really becomes a self-piloting investment.
I recommend using VIAC for 3a accounts, they give a wide range of ETF index funds to choose from and rebalance the positions according to the chosen strategy monthly.
2. Don’t overthink it and avoid fees
Average investors aiming to building wealth should start early, that way the long investment horizon allows for a simple auto-pilot strategy that will outlive the eventual market downturns. A complicated strategy is not necessary in most cases.
A low-cost index ETFs are an excellent option for people investing their first few thousand dollars in the market. Index ETFs instantly diversify one’s position and are traded daily.
Because they are not actively managed, these index funds have low fees and are designed to match the market.
3. Do Not Micro Manage
A pitfall that many newbies will fall for, is micro managing one’s investments. Checking and rechecking how a position is doing can lead to fearful selling or overzealous buying – thereby steering away from the long-term strategy.
When investing for the long-term (more than 10 years) you do not have to worry about daily market fluctuations. Pick a strategy and don’t mess with it.
4. Do Not Put all your eggs in one basket – Diversify
One of the surest way to be successful while investing in the stock market is to avoid putting all your eggs in one basket! By diversifying an investor can spread the risk of an individual stock / industry / asset class among other instruments. This helps to maximize returns and minimizes over-exposure to one stock / industry / asset class.
It’s a good idea to revisit the blend of your investment every 3-5 years. That way the risk profile of the investments can be adjusted to the age of the person, the related investment horizon and changing life situations.
5. Most Importantly: Just start
Money is an emotional topic for a lot of people. Many of us that went through the 2009 financial crisis have preconceived notions about the stock market. It it holds us back from taking necessary risks. But, just like the new years resolution to go to the gym more, you have to just start eventually.
Of course it’s important to think of a suitable strategy before throwing money at random investments. But ultimately you have to take the first step. It’s probably best to start small, maybe it’s 100 CHF a month or 1’000 CHF.
Just remember: the earlier you start, the more years you will have to take advantage of compound interest growth!
Give me some feedback
Are you hesitant to start investing? What are your reasons to wait?