Updated: March 31, 2022
Everyone would agree that investing is something that financially smart people do. However, not everyone who has the money does it. Why?
There are many reasons but the most common are usually: one, they don’t know how to start or two, they’re really afraid to lose their money.
If you’re this type of person, then here’s a simple investing guide for you.
I’ve always believed that a person will not be successful in investing if he does not know how to save money. Saving is a habit that all investors have. So before thinking of becoming an investor, first – be a saver.
Having a savings account has three purposes. First, to build your emergency fund. The second is to teach you how to control your spending. And third, to help you appreciate the value of frugality.
Time Deposits / SDAs
Time deposits and special deposit accounts (SDA) are your next investment considerations. In my opinion, once you have around three months worth of monthly expenses in your savings account, then it’s time to funnel the rest of your emergency fund to a TD or SDA.
How much should you put into these investments? I’d say another three months’ worth of your monthly expenses, but it can be more. Personally, I have six months worth of expenses on time deposits – which gives me a total of nine months worth of emergency fund (that’s savings plus TDs).
Low Risk Investments
So far, you’ve covered your very immediate future. At best, no financial emergency will be bad enough to break you. And because of that, it’s now time for you to face a money saver’s greatest enemy – inflation.
Insurance, treasury bills, low-risk bonds, and some mutual funds are just some of the things where you can invest in. These instruments will more often than not, give you enough interest rates to at least keep up with inflation.
Medium Risk Investments
Low-risk investments are there to help you keep up with inflation, but if you really want to beat it, then you have to take medium-risk investments. Balanced funds, selected stocks, some real estate investments, and small to medium-scale business ventures are examples of these.
Medium-risk investments typically earn money after at least two or three years. So the amount of money you should invest here must be an amount which you’ll never need during that much period from the present time.
High Risk Investments
Medium-risk investments will beat inflation, but they will rarely make you rich. Big investment wealth can only come from high-risk investments such as large-scale business ventures, foreign exchange, real estate, stocks, and aggressive funds.
These investments will typically need at least five years before you can realize a profit, some even longer. I know it can be a long time but I will tell you now – it’s really worth the wait. Just think of it as a marshmallow test.
- Save money first – track expenses, pay yourself first, make it automatic.
- Build an emergency fund and put it on zero risk investments (TDs, etc)
- Keep up with inflation through low risk investments.
- Beat inflation with medium risk investments.
- Accumulate big wealth by choosing high risk investments.
Do not be afraid to invest. If you’re afraid to lose money, then diversify your portfolio by investing in different types of instruments. Furthermore, invest with a long time horizon. These two strategies can really minimize, if not eliminate, investment losses.
The investing tips I wrote above are just a simplified guide and may not be the best option for you. Let a financial planner or an investment consultant give you additional advice before you decide to invest in anything.
Furthermore, it’s usually never good to invest just for the sake of investing. One needs to have an investing objective – a specific reason – why you’d want to invest.
To learn more about investing in greater detail, I really suggest you read my two-part article, A Beginner’s Guide To Investing on Anything and Everything.
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Photo credit: troy_williams
Great tips on saving and investment, something that I can really relate to because it’s not too technical lol
I love to backread to those interesting investment topics when I have the time. 😉
Great introductory article for people who do not know where to start and who distrust risky investments. keep it up fitz. 😀
Well said Fitz! When it comes down to money, most people resort to their money habits…to do only what they are comfortable doing. In most cases, it’s to spend all the money they have. 🙂
I totally agree with you that before investing, you have to learn to save first. It’s never a good idea to invest using borrowed money…unless you’re Donald Trump, who lost a lot of money but regained it all back after a few years.
At the end of the day, you have to build better money habits like learning how money works, jumping in to gain actual experience by starting to save and invest, and having faith that everything will be OK because your dreams are bigger than your fear of losing money.
fear is the number one enemy of growth.
Planning for your future and retirement relies on planning the right kinds of long term investments. There are many different types of long term financing investments, and everyone needs to have some sort of alternative investments for their future. Planning your retirement and long term investments go hand in hand debt free.
[…] An Investing Guide For People Who Are Afraid To Invest […]
Just my own thoughts. For me, it would be easier if you would set up first a time deposit than concentrating first on your savings account. Because putting ur money in a TD would be a bold but sure move that you would not touch your money. Because if you will set up a savings account first, realistically, most of us would never be able to resist the temptation of filling up a withdrawal form or going to an ATM machine. If you are planning to save, then go for a more concrete saving mode than just a mere savings account right? Besides, if you need money for emergency purposes, you can preterminate ur TD anytime, of course with some interest reduction and pretermination charges but it would not eat up much of ur placement. Yun yung challenge sa yo not to touch it whatever happens, right?
Yes, that would be a bold move and I’d actually recommend it specially for those who are trying to muster some discipline in saving.
And you’re right, some banks do allow you to preterminate TDs with only interest reduction as consequence and no fees (i.e., East West Bank).
Under this scenario, setting up a TD from the very start would now be the better option – you get to enjoy optimal interest rates without much compromising your liquidity.
Thanks for pointing this out.
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Excellent step by step plan on how to begin the financial journey. Beginners must come to grips with the fact that everything you do in life has some degree of risk. If the farmer does not prepare the soil and then cast the seed, there will be no crop to harvest. Investing works the same way.
Fritz.. i am very much interested to meet you and seek your financial advice. I am OFW with some millions of PhP to spare.. I have some plans where to put my money. But i want to hear from someone like you. I want to know the best strategy for someone like me who is no longer in my youth but not too old, not struggling financially, but struggling where to invest my extra savings.. How much would it cost for your short advice?
@Hotch, P1,500 per hour. You can send me an email to discuss further – firstname.lastname@example.org