Guest Post by Hilda
Do you want financial freedom? Do you desire to retire on the beach and sip cocktails as you watch the sunset? Perhaps you aspire to take it easy and not have to work an 8-5.
For whatever reason you want financial freedom, your want is valid. But, for most people, they feel it is out of reach. They think you need a ton of money to attain it, which is not the case.
With planning and foresight, you can gain financial freedom. And the surest way to attain it is through investing.
Investing is the practice of putting money aside in a venture with the expectation it will yield a profit.
So how do you get started? This article is going to show the ropes on how to invest and get you started on your journey towards financial freedom.
Here is what you need to do:
1) Get started investing as soon as possible
A famous Chinese proverb says the best time to plant a tree was 20 years ago. The second best time is now. In investing, it means the best time to invest was 20 years ago. If you did not do it then, now is the second-best time to do it.
It could not be more accurate. Beginning your investment journey when you are young is the wisest decision anyone could make about personal finances. Thanks to the power of compound interest.
Let’s look at two investors. After reading much personal finance material on retirement, Craig, a 21-year-old college student, started investing $200 of the money he earned from part-time jobs.
He did this for 9 nine years, and when he turned 30, he stopped altogether. His friend Chris started at 30 years old. He put in $200 every month until his retirement age of 67.
The question would be, who had the most money at retirement?
Many people think Chris had the most money since he contributed money throughout until his retirement. But it is not the case.
Thanks to compound interest, Craig only contributed $21,600 and ended up with $2,547,150.While Chris contributed $91,200 for 37 years, but only managed a return of $1,483,033. Less than Craig return.
The takeaway here is that time is your best friend in investing. Start early, and you will grow your investment.
2) Decide how much to invest
Everyone knows what they want out of their investments. For some, early retirement is the goal, while for others is to gain more leisure. Whatever your investment, be particular about why you are investing and how much time you need to reach your goals.
For example, if you are investing for retirement, set the age you want to retire. Then calculate how much income you need to live off your investments (factoring in inflation) and finally work out how much monthly contributions you need to be making towards your retirement? This way, you have a concise and practical way forward on how to start and keep investing for your retirement.
3) Open an investment account
If you are investing for reasons other than retirement, you must avoid retirement investment accounts. It is because retirement investments are designed for retirement and have regulations on when and how you can withdraw your money. They also have taxation laws against them, which are punitive for early withdrawal.
So, how can you invest without going the route of retirement accounts? The ideal option is to open a taxable brokerage account. Today there are many online brokerage firms where you can open an account and start investing your money.
Many of them have no account minimum to open an account; they have zero trading fees and zero annual or inactivity fees. Therefore, there is little or no barrier to entry for investing.
Being the case, you can invest as little or as much as you have and watch your investment grow. When your investment matures, you can withdraw and enjoy your money.
4) Understand your investment options
Understanding investment options out there can overwhelm the average investor. Many people do not have the much-needed information and knowledge on investing. They do not know where to start and have a lot of questions.
The questions include which is the best investment option, how do you mitigate the risk of loss, how do you make sure you have picked the best investment? All of which are valid questions.
The best way to answer these questions would be to do your research and understand the various investment options in the market. Then choose the ones that would be the most appropriate for your situation.
Some investment options you can have a look at our stocks, bonds, mutual funds, and exchange-traded funds. You can access them by opening an online brokerage account with any of the reputable Robo-advisors.
5) Pick an investment strategy
When strategizing about your investments, start by reviewing your goals and needs. Take out the time to think critically about what you want out of your investment.
Once you are clear on what your goals and needs are, make an investment plan. Starts by investing in low-risk investments, then build to medium-risk investments. Only move to high-risk investing when you have your low and medium-risk investment in check. However, it is not a must you invest in high-risk options.
Lastly, decide how hands-on you want to be with your investments. If you wish to be hands-on, you can pick a couple of stocks and individually trade in them. If you do not want active involvement, you can invest in options like the index fund. Overall, have an investment strategy and stick to it.
The road to financial freedom can be challenging. It does not mean it is not worth it. With the right information and tools, it is possible to achieve it. And the best way to do this is through investing.
Start today and put yourself on the journey to financial freedom.
Guest Post Author
Hilda Munjuri is a freelance personal finance writer. She enjoys finding new money hacks and investing. Her dream is for everyone to achieve financial freedom in their lifetime. Connect with her on https://www.linkedin.com/in/hildamunjuri/