Cactus Personal Finance

Hello everyone! This is a beginner guide to someone who is completely new to investing. Investment might seem an intimidating place, my step-by-step approach will give you some guidance on the practical steps.

I will make it clear that everything I write on my website aims at buying/selling equities in established companies within a regulated context.

I’d like to emphasize this is not a financial advice. If in doubt about anything, I encourage you to do your own research and seek financial advice from a regulated financial advisor.

Now let’s begin with our step-by-step approach.

Step 1: Think about your risk profile

Why is risk so important? One good way to understand your risk profile is to think about how would you feel if your money falls in value. If you can cope with the idea of seeing your money going down, you’re ready for a higher investment risk profile.

If you’d be having sleepless nights if your investment goes down, then you might consider a lower risk profile.

The higher risk profile, the higher returns

Step 2: Time.

Time horizon is essential when it comes to investing. How long until you need your money back?

If the answer is less than 5 years, you shouldn’t put your money in the stock market.

Another point worth noticing, returns tend to be higher in the long run

Step 3: Diversification is key

One way to mitigate risk is to invest in many companies.

if you invest in many companies and one of them goes bust, it will have little impact on your portfolio.

If your portfolio holds only one company and it goes bust, then you may loose all your money.

That’s why diversification is essential.

How to diversify your portfolio? In fact it’s very easy, you can achieve diversification is by investing in an exchange trade fund, also called ETF.

When we think about diversification, it’s worth looking at a geographical level. You may want to put your money in more than one country or region. Another point worth considering is sector diversification. It’s best to have your money invested in multiple sectors, such as technology, financials and healthcare.

Step 4: Make small regular investments

Once you’ve decided on your risk profile and time horizon, let’s think about how often you want to invest.

Most ISA providers let you invest monthly as little as £25.

Investing small amount at regular intervals adds the benefits of smoothing out your investment returns during periods of market downturns.

By taking it slow it saves you having to worry about timing the market to wait the right moment to invest.

Step 5: Keep your costs as low as possible.

One great way to maximize your return over the long term is to keep costs as low as possible. Costs often come as percentage. Keep in mind that over the years the difference in outcomes when you’re paying low 0.2% versus 1% can result in huge differences, say thousands of pounds.

Investing is long journey, don’t expect to know everything at the start. We learn as we go.

Thank you for reading and I hope you enjoyed this post.