How to Start Investing as a Beginner?
Have you ever wondered how to start your investing journey? Do you fear the term “investment” because of all the different types of investing jargon? Like you, I know nothing about investment at the beginning. I do not know the differences between stocks, ETFs, unit trusts, etc. However, I took the initiative to learn the basics and invested using Robo-advisors, like Endowus and Syfe. In this post, I will be sharing with you my investment approach.
DISCLAIMER
I am not a financial advisor. The information on this post does not constitute financial advice. I strongly advise that you read up on investment before you start to invest. Please do not make any decision solely on this blog post. It is always better to get a second opinion and seek professional advice.
1. DCA vs Lump Sum Investing
Currently, I prefer the Dollar Cost Averaging (DCA) strategy for investment because I can invest in a small amount every month. One reason is that I will need to take a long time to save up a large amount for investment. Hence, instead of waiting, why not just DCA first while I save up another bucket for investment. I know that some prefer to use the lump sum investment technique, as they have ready cash. Moreover, they waited and invested when the market was low. However, I do not time the market. Honestly, looking at the pandemic, you never know when a bull or bear market will occur. Moreover, there are so many investment options. Right now, I am taking a passive approach towards investment too.
Like I said earlier, I am using the DCA method. I like to think of it as I am “shopping” every month whenever I pump money into my investment account. So, I don’t get upset about the as and when there’s a fluctuation in the prices. I have to take the risk, so I feel better when I reframe my mindset that I am “shopping” for something that has value.
Will I try out the lump sum investment approach? Yes, I will do that in future when I save enough for my emergency fund.
2. How much do I invest every month
I invest money that I can spare every month. I top up the same amount on most months.
I do not use my emergency fund in investment. I do not invest money that I know I will spend soon too. I prefer to have some cash on hand.
I would recommend that you track your cash flow and plan for your investment if you prefer the DCA technique. You can average out the investment monthly, quarterly or even yearly. At the same time, you can also put aside a small amount to grow it into a bigger pot for future lump sum investment. You have to be aware of your investment timeframe too. If you only have a decade, just DCA now because who knows how long you need to save your first pot of money for investment. However, if you are young and time is on your side, you can DCA and save up for future lump sum investments.
3. Conclusion
If you wonder which method yields better results, investing a lump sum as soon as possible would derive higher returns over the long term. For example, Person A invested a lump sum 10 years ago vs Person B DCA over 10 years, Person A would see higher returns. This is true as markets have historically proven to climb higher in the long run.
I am comfortable with my investment approach and budget range right now. I am a passive investor. I am happy with the returns that I am getting too.
I would advise you not to be in a hurry to grow money. Honestly, it’s ok to take baby steps. It takes time to learn the basics and find a strategy that works for you. It took me 2 years of working with different people, trying out different Robo-advisors, reading about the various portfolios and even tweaking my budget so that I could start investing. And, I am still learning.
Hence, here are some questions that you can ask yourself before you kickstart your investment journey:
How much time do you have? Your answer will determine your investment period.
What is your risks appetite? Your answer will determine the potential returns of your investment. As you age, your risks appetite will change too! Hence, review your investment portfolio at different life stages.
How much can you invest now? Do you want to save first and invest later? There is also no point in investing if you can’t make ends meet.
Are you a passive or active investor? If you want to be an active investor, you have to do a lot of research!
Figure out a strategy that works for you!
I hope this article helps.
x, Esther
If you are looking for Robo-advisors, check out my Endowus vs Syfe review. Here are my referrals links!
ENDOWUS
When you invest with Endowus using the following link, you get $20 in Access Fee credit.
https://endowus.com/invite?code=LPGKH
SYFE
You can use my referral code - SRPRF7XNC - when you sign up for an account with Syfe. You would receive a six months fee waiver on your first S$30,000 investment.
Of course, you can choose not to use any of the referral links or codes and sign up with the company directly.
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