Successful investing begins with understanding the basic components of investment and how they relate to each other. It’s important to recognize that every investment carries a certain level of risk. For example, cash is considered the safest option, but it offers low returns. Meanwhile, alternative investments are generally riskier but have the potential for higher rewards.

Investing is an alternative to saving for the future. Alongside insurance, it gives us the opportunity to grow our wealth over time — at least to a sufficient amount. That’s why many experts recommend starting to invest, especially once a person has paid off their debts and secured an emergency fund.

The Unwritten Rules of Investing

The keys to successful investing are planning, accuracy, and diversification. These three elements help identify investments that match your risk tolerance and investment horizon. However, before taking the next step, there are a few unwritten rules to follow before you begin investing.

The first rule is to make sure you have no debt. Pay off all your loans, especially large ones. Create a budget to manage expenses such as rent, utilities, transportation, and daily needs. And when there’s money left over, don’t rush into investing.

Once your basic needs are covered and debts are paid, make sure you have an emergency fund. An emergency fund is money saved for unexpected situations, such as car repairs, job loss, or medical expenses. Having this fund ensures you won’t need to worry about such emergencies.

Types of Investments

When you’re ready to invest, you need to find an investment that suits your financial goals, investment horizon, and risk tolerance. To do that, you must first understand the different types of investments.

Investments are generally classified as defensive or growth.

Defensive investments are those expected to have a lower chance of losing value. These include cash and fixed-interest products.

Such investments aim to generate income while protecting your invested capital. However, since they carry lower risk, their long-term returns are also likely to be lower.

On the other hand, growth investments carry a higher risk of fluctuating value. These are designed to provide higher long-term returns compared to defensive investments.

The capital value of growth assets tends to be more volatile in the short term. Investors who choose growth investments typically aim for higher returns and to meet long-term financial goals.

You Can Pay Someone to Invest for You

When starting your investment journey, you can decide whether to do it yourself or hire a professional.

The benefit of managing your own investments is having full control over every decision. However, this requires a solid understanding of investment principles. If you don’t fully understand the risks, costs, tax implications, and objectives of investing, it will be difficult to achieve success.

Alternatively, you can hire a professional investment manager.

If you invest through managed funds, separately managed accounts, exchange-traded funds (ETFs), or listed investment companies (LICs), your money will be pooled with that of other investors. The professional manager will then buy and sell investments on your behalf.

The advantage of using a professional service is benefiting from their expertise and experience in making investment decisions. However, you’ll need to pay fees for these services. These can include management fees, administrative costs, and entry or exit fees.

When You’re Ready to Invest

Investing is a serious commitment that requires careful planning.

Before you start, proper preparation is crucial. With a solid strategy, fixed-income investments can potentially provide stable and profitable returns.

One key factor to consider is timing. Choosing the right time to enter the market plays a major role, as it can affect the performance and long-term success of your investments.

There are several signs that indicate you’re ready to start investing:

you already have an emergency fund, health insurance for unexpected situations, and you’re debt-free. You should also have a stable income, clear financial goals, and most importantly, an understanding of the risks involved.

From the market’s perspective, it’s best to invest when the market is stable and when the company you’re targeting shows strong fundamentals. You can gain these insights through regular investing and continuous learning.