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How To Invest Money For Beginners

Investment can be an extremely powerful tool if you know how to use it wisely.  So this article will provide how to invest money for beginners.

Although most people get their money from salaries, the situation is quite different for the rich.

For people who are making $ 10 million or more, salaries account for a very little proportion of it - just about 15% of their income. Rich people make more wealth from investments and businesses.

However, if you are a beginner and not a finance pro, then the whole thing may sound complicated.

 

 

What Are The Investment Options Available? 

This list can indeed go on and on!

Before I began investing, I spent half a year immersed in books, articles and conversations with consultants - just to figure out what this whole thing was all about.

I realized that in reality, learning how to invest is NOT so difficult.

In fact, it can be paralleled to the car analogy - in order to learn how to drive the car, it is not necessary for you to know all about its parts and mechanics of it.

It is the same thing with investment – if you don't intend on being a professional investor, but have your day job and want to grow your capital, then you just need to learn a few simple things.

Why Does One Invest?

The reasons for investing can be diverse:

  1. You want to get out of debt, save some money, and grow your capital.
  2. You have some disposable income and want to make use of it. Maybe, you have inherited some money or have extra savings lying around.
  3. You want to save for your retirement.

In any of the above cases, it is great that you are here.

Statistics have shown that most people have inadequate knowledge about investments and finances, even though it is a crucial element in everybody’s lives.

Therefore, your effort to improve your financial knowledge is already commendable! Take it as a compliment!

 

Shocking Investment Statistics 

Before we begin with the investment strategies, here are 2 interesting statistics for your consideration:

  1. Most Americans expect to have their mortgage paid off by the age of 75. However, over 21% of Americans still carry mortgage debt at that age.
  2. When asked how much they have saved for retirement, 53% of American workers answered less than $25,000, and 35% stated they have saved  less than $1,000!

While the exact numbers may be different in other countries, the overall trend is still very similar.

 

Goals Of Investment

First of all, everybody needs to manage his/her finances. At the very least, it is essential for everybody to save enough money for their retirement.

What does ‘saving for retirement’ really mean?

It means that a certain amount of passive income will keep coming even when you stop working.

While this is essential at the age of retirement, passive income is always awesome, at ANY age! It can bring you financial freedom: when you may choose if you WISH to keep working or not.

 

Simple Formula To Create Your Investment Plan 

Let’s project the amount of passive income you'd like to have, and in turn, understand the amount of capital required to achieve the same.

First, calculate how much you need to cover your monthly expenses. Ideally, your passive income should be able to cover this amount – only then are you truly financially secure.

Take this amount you need per month and multiply it by 150.

The resulting amount is the size of the capital you will need to accumulate.

 

Sample Invest Plan – 1

If you want to have $1000 passive income per month; then you need to accumulate $150,000 for your retirement.

If you want to reach this goal in 10 years, then you need to set aside $10,000 per year. Assuming that your capital will grow at 8% per annum, you will reach your $150,000 target in 10 years. This is realistic. {I know it doesn’t seem so; we’ll discuss it soon}.

Let’s take another example –

 

Sample Invest Plan – 2

Imagine that you are making $3500 per month, and you wish to replace the same amount with your passive income.

In that case, you’ll need to invest $10,000 per annum for the duration of 20 years. This will result in an accumulation of roughly half a million dollars a passive income of $3500 per month.

At this point, I am sure you have many doubts. Let’s address some of them.

 

Possible Doubt #1:

“I can’t afford to invest. I don't have much money to dispose of.”

I completely understand that you may have a long list of expenses:

Therefore, you may have a very little amount (if any) left at the end of the month.

Don't worry. There is still light at the end of the tunnel.

Have a look at this –

Average lifetime earnings statistics (2009):

In fact, you do earn A LOT during your lifetime. The trick lies in managing your money properly. If you do so, you will have a guaranteed stable financial future.

If you wish to know more about saving money, check out our blog –

The absolute best way to save money.’

Here is another thing here –

The point of investment is to make MORE MONEY.

Imagine that you enclosed two $100 bills in a dark room.
After some time, a surprise comes – a brand new $50 bill was born!

Even if you have little amounts at your disposal, investment will multiply it.

 

Possible Doubt #2:

The amount of passive income I may hope to receive is too small. This small amount is not so appealing.”

 

Well, consider these interesting statistics:

36% of adults between the ages of 50 to 64 haven’t saved anything for their retirement!

So if you’ve saved anything, you can already Be Proud Of Yourself.

Another thing is – time is going to pass away no matter what.

So you have two choices:

Be in the same financial situation 20 years from now

Or

Improve your future financial situation significantly

Another thing to take into account – investment is a long-term gain.

In the long-term, it is possible for your investments to yield big results (even when you start small).

Therefore, there is a high chance that you will accumulate much bigger figures of money that what you are imagining at the moment.

 

Possible Doubt #3:

“I don't want to wait that long. I need the money now!”

Well. All of us would wish to ‘HAVE IT ALL’ and ‘HAVE IT RIGHT NOW!’
This is normal.
It is understandable.

We all have lots of bills to pay.

In fact, many people Google –
“How can I invest and double my money quickly?”

The blunt answer to this is – there is NO WAY!
Investments don't work that way.
Higher the possible return on investment, the HIGHER IS THE RISK.

People who are desperate for quick money usually pick “quick investment options.” However, it seldom yields positive results – they usually end up losing their money.

Here is the summary of an interesting academic study of frequent traders by Brad Barber and Terrance Odean –

The most active traders reaped the lowest returns.
Indeed, between 1992 and 2006, 60% of active traders lost money and only 1% of them could be called predictably profitable.

As you can see, the results are simply awful.
Instead of this, you’d rather just go to the casino! In some of the games your chances of winning are slightly below 50%.

Now, don't get me wrong. I am in no way suggesting going to the casino. The point I’m trying to make here is that in both cases – short-term investments as well as casinos, the chances of LOSING MONEY IS HIGH.

So instead – Choose A Wiser Strategy. Grow your capital SLOWLY BUT STEADILY.

After all, slow progress is better than no progress.

And of course, it is infinitely better than losing your money and ending up with a negative balance.

 

What Is A Simple And Wise Investment Strategy?

First of all, let’s quickly re-collect the main objective of investing –

It is to save enough capital so that it will bring you a decent amount of passive income every month.

Here is an analogy with the money tree –

Imagine that in the beginning, there is nothing out there.

Here, you are going to plant a tree.

Take care of it and water it every day.

This tree will grow and yield you returns as it becomes bigger and bigger.

Therefore, your task it to Simply Grow The Tree.

 

The single best strategy you can take to grow your money tree is this –

Put aside 10% – 30% of your monthly income and invest it in low-risk investment tools.

This simple strategy has proved its efficiency over decades.

It is truly simple.

It takes almost no additional time and effort.

It almost certainly guarantees your secure financial future.

What’s more important, it avoids any tricky pitfalls of investing – you will definitely be on the road to success.

Slowly. But steadily. It will surely bring your great results.

If you want to learn specific steps on investing – check out my next blog posts.

 

P.S Share with us your experiences of investing in the comments below.

Igor Smirnov

Igor Smirnov

Psychologist, blogger, chess Grandmaster, Internet entrepreneur. Follow Igor on Facebook

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