5 Simple Steps to Get Started with Investing
This is mainly informed by the needs of Africans living abroad as well as their beneficiaries back home. Our diaspora survey also revealed that about 21% of the funds that Africans in the diaspora send home is directed towards saving and investment (but remember, these two are not the same thing). There are various elements to be considered before one invests but once that’s done, it’s time to get started. In this final edition of our 4-part series, we discuss 5 steps to get anyone started.
1. Set A Goal
This relates to the reason behind why you are investing. Investing is the act of purchasing an asset with the hope that it will generate income or appreciate in value in the future. At the beginning of your process, you need to know what this future is as this will help you in setting your investment horizon. This then has an implication as to what you can or should invest your funds into. Goal setting should precede any investment activity as it will also give you something to track whether or not your investments are successful or not. Aside from what you intend to achieve through investment, be it a steady flow of income in your retirement, the purchase of a larger asset or to start a business, your goal will guide and motivate you through your investing journey.
2. Learn the Basic Concepts
It is important to get a basic understanding of investing before you put your funds into any opportunity. This type of learning will be invaluable and is an investment in its own respect. Learn basic concepts such as the relationship between risk and reward; different asset classes; investing terms e.g. diversification, dividends, interest; and some economic concepts such as inflation. “An investment in knowledge always pays the best interest.” — Benjamin Franklin The ability to understand the return on an investment will help you choose between alternatives and also make sound investing decisions. There are a lot of readily available resources online (free & paid) that you can use to learn these basics.
3. Know Your Investment Options
There is a very wide variety of investment options available to people today. Knowing what options you have enables you to plan better. Selecting which assets to invest in is better done once you’re well informed as to what is available to you. This also allows you to align your investment strategy with your investment goals. The amount that you have available also plays a role in selecting what to invest in. However, be very aware of fees charged by providers of different investment services. Some investment options are much costlier than others. High fees have a direct impact on the kind of return you can achieve from any investment.
4. Set A Strategy
You need to chart a map of how best to achieve the goals you set. With the knowledge you have earned through your learning, you’re now well placed to set a basic strategy. You can always then speak to a financial planner or investment professional who can guide you as to how sound the strategy is. Your investment strategy will lay out the details such as how much you will invest and on what frequency, what assets you will invest in and which ones you will diversify into, what you will do with the income received from dividends or interest-bearing assets, what channels you will use, and so on.
At this point, having mapped out a strategy, you must select which service providers or platforms you will use to invest. There is a large number of financial intermediaries and institutions that can assist you in executing your plan and purchasing the assets you wish to. Always pay attention to the range of services a single player can offer and know what their strengths are. Do some basic due diligence on the entities you choose to entrust your hard-earned money with. You can do this by checking online reviews or news surrounding the entity and definitely ask peers who may be clients of the institution(s).
“The investor’s chief problem — even his worst enemy — is likely to be himself.” — Benjamin Graham
Regularly review your investment plan as well as your returns. This will put you in a good position to take action in the event that there’s a large deviation from the goals. It is also important to review the goals that you set — as time passes, and circumstances change, goals will also change. As you achieve some, put in new, more ambitious ones and work towards those.
A lot of people steer clear from conversations around investing out of the wrong illusion that it takes a lot of money to invest. The most important thing is to start! The amount is nothing if the decision to start is never made. Remember always, investing is a long term game and what is small today will grow but only if you sow.