As the new year begins, many individuals are setting resolutions, and for those aiming to improve their finances, investing could be the right step forward. While the idea of investing may seem daunting, financial experts emphasize that starting small and understanding the basics can lead to long-term benefits.
Breaking Barriers to Investing
Common reasons people avoid investing include fears about risk, a perceived lack of wealth, or a lack of confidence. Yet, investing offers more than just potential profits—it can act as a hedge against inflation, unlike traditional savings.
Financial experts suggest starting with basic investment types, including bonds, stocks, and pooled funds, to understand the landscape and build confidence.
Understanding Bonds
Bonds function like an “I owe you” from a company or government. Investors lend money and receive interest, known as the coupon rate, at regular intervals until the bond matures.
Yield, a key term in bonds, combines the coupon rate and potential market profits to reflect the bond’s profitability. Credit ratings also play a vital role, with higher-rated bonds being safer investments.
Stocks and Shares
Shares, or equities, allow investors to buy a stake in a company, effectively making them part-owners. Share values fluctuate based on company performance and economic conditions, making them a medium-to-long-term investment.
Jason Hollands of Evelyn Partners highlights the importance of patience: “Investing should be long-term because prices fluctuate. You need to tolerate the downs as well as the ups.”
Dividends, another income source, are distributed to shareholders, either as cash or additional shares, further enhancing returns.
Diversifying Through Pooled Funds
Diversification is crucial in investing, often summed up as “Don’t put all your eggs in one basket.” For those with limited funds, pooled investments like mutual funds or ETFs (exchange-traded funds) can help spread risk.
While mutual funds are actively managed by professionals, ETFs often track specific indexes like the S&P 500, offering a cost-effective, passive investing strategy. “Taking trading costs out can significantly impact your returns,” said Colm Moore of Moore Wealth Management.
Alternative Investments
Beyond stocks and bonds, assets like gold, real estate, and cryptocurrencies provide additional options. However, factors such as liquidity and market conditions should be considered. Gold, for instance, is a safe-haven asset but lacks dividend income.
Expert Advice for Beginners
Financial experts advise against impulsive decisions based on market trends. They also recommend paying off high-interest debts and ensuring an emergency fund before investing.
Moore cautions against panic during market downturns: “The biggest mistake is pulling money out during lows. It’s about time in the market, not timing the market.”
With proper planning and patience, investing in 2025 can be a significant step toward financial security.
