Investing

Investing 101: How to Get Started

Investing 101: How to Get Started April 20, 2017Leave a comment

I am an economist and the founder and owner of Finance Blog Zone

investment tax stock market

Once you get a hang of it, you’ll realize that making smart decisions regarding your investments is pretty easy. The one question people ask themselves once they start attaining financial stability is whether there are a few ways to making a living online that involve investing.

If you’re one of those individuals who want to go the investment route, then you should begin by acknowledging the fact that you’ll be remitting less money to your savings account from now on. If you have large financial commitments in the next one or two years or so, then setting aside money for investment right now would be placing yourself in a precarious position. Nevertheless, if you have no future obligations and have plenty of money lying around, then there has never been a better time to begin investing.

investment tax stock market
The most tax-efficient investments to protect yourself from overspending on tax

The stock market

Given you’re financially stable and all set to go, the best advice you can receive right now on what to do is borrowed from what Warren Buffet told his wife.

  1. Open an Individual Retirement Account
  2. Invest money every month to the stock market through a reputable brokerage firm e.g. CMC Markets.

It’s really that simple.

What many people fail to realise is the value of time spent and consistency in the stock market. Warren Buffet famously said, “it’s not about timing the market, but time in the market”. Don’t be the investor who holds on to his money waiting for the opportune moment to make that investment as it rarely works out e.g. hoping the market corrects in order to buy low.

Dollar cost averaging

The effort you’ll be making to invest excess cash every month into the stock exchange is basically what’s called dollar cost averaging. The benefit of maintaining these monthly investments is that it protects you during a high and low seasons. It also renders the advice of people who assume they can predict market trends to be inconsequential. You will therefore avoid being one of those investors holding on to their money on the sidelines waiting for a perfect opportunity that won’t come.

Obstacles for first time investors

A common characteristic of first time investors is a phenomenon known as ‘analysis paralysis’. This refers to a scenario whereby an investor gets so caught up with trying to find the most ideal solution that they end up not making any investments. This phenomenon highlights the psychological aspects of investing alongside the technical ones as well. Settling on an ideal solution that you believe would work in the stock market is fairly possible but mustering the psychological fortitude required to actualize it is a whole other matter.

Productive procrastination

Over time, ‘analysis paralysis’ results in the individuals exhibiting ‘productive procrastination’ which is characterised by a pattern of behaviour involving an individual deliberately focusing his/her energies on simple tasks while consciously avoiding the more difficult tasks that require immediate attention. An example of how this phenomenon plays out can be seen in an individual who’s supposed to be studying for his examinations. He might have an open book on the table but this person will embrace the first distraction that comes his way. He might notice a number of texts on his phone and concentrate on answering those texts instead of focusing on the task at hand. This indicates an aversion to studying which in this context relates to making investments. In order to handle this problem, one must first begin by acknowledging that its problem and work on resolving the psychological factors that may be responsible for it.

Your savings rate

‘Productive procrastination’ and ‘analysis paralysis’ may be significant impediments to your success as an investor but the bigger hurdle whose impact you can’t underestimate is your savings rate. It is up to you to efficiently manage your expenses in order to ensure that you have the financial independence to engage in any investment ventures. Proper management will involve figuring out the most tax-efficient investments to protect yourself from being edged out from making investments by tax payments. Given there are only a few ways of making a living online that match the payout you can get from investing first-time investors should start investing quickly.

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I am an economist and the founder and owner of Finance Blog Zone

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