How to start investing: 7 ‘essential’ tips to build your wealth in 2024 | Personal Finance | Finance

Did you have a New Year’s resolution to do something sensible with your money? January is a great time to look at your savings and move them to long-term investments instead.

But it can be daunting if you haven’t done it much before. You might be tempted to leave your cash in boring savings accounts that are safe but don’t help your money grow, rather than dip your toe in the water of stock market investing.

Well, the good news is that you can do it bit by bit, and there is a lot of information on the internet to help you get started.

Any seasoned investor will tell you that building wealth in the stock market requires careful planning and discipline.

Let’s explore seven important habits for creating a successful stock market portfolio, covering everything from getting started to taking care of your investments to managing risks.

Consider investing automatically

Setting up automatic contributions in the form of a standing order from your bank account into a brokerage account can be the best way to get yourself investing without having to think about it.

Whether it’s a modest monthly contribution or a more substantial commitment, automatic investments instil discipline and can enable the gradual accumulation of wealth without the need for significant upfront capital.

If you’re wanting to set up automatic payments, a pound-cost averaging approach can be a good way to go about it. This strategy involves consistently investing a fixed amount each month, irrespective of short-term market fluctuations. Over time, the approach can help smooth out the impact of market volatility.

Diversify your investments

If you want your investment pot to grow and weather the storms of economic ups and downs then it’s essential to ‘diversify your assets’ – in other words, ‘spread your bets’.

The reason why it’s so important not to put all your investment eggs in one basket is that by spreading your money across various asset classes, you can help to smooth out the ups and downs of the various investments. If one tanks, you have the others to fall back on.

For instance, putting all your funds into technology start-up stocks would expose you to substantial risk in the event of a tech market downturn. A well-diversified portfolio, on the other hand, could provide a buffer in that way that gains in some areas (like gold, property, savings accounts and band funds) would likely offset losses in others during market fluctuations in a single industry or sector.

Prioritise low fees

Fees charged by fund managers, investment platforms or advisors can significantly impact your investment returns which is why it’s crucial to compare fee structures among different investment platforms and funds.

For example, some investment platforms may take a slice of your returns in the form of a percentage cut. Others may take a fixed sum every time you buy and sell shares, which can soon add up.

While investing fees can rarely be avoided entirely when investing, taking the time to research providers, and opting for a platform that best aligns with your investing style will almost certainly be good for your wallet.

Look at investing passively

Passive investing has gained prominence as a lucrative strategy for many investors in recent years. Instead of delving into extensive market analysis and stock selection, passive investors instead opt for simplicity.

So, for example, if you invest in low-cost index tracking funds, investors essentially let the market do the work for them. This approach often delivers competitive returns compared to the challenges of handpicking individual stocks. You can find out more about index trackers and how to invest in them here.

Maintain a long-term outlook 

When it comes to investing, patience is a virtue. You might have heard people boasting of how much money they made with day trading, and short-term gains may sound tempting, but the ‘slow and steady wins the race’ adage usually holds true. If you adopt a long-term perspective it not only helps you weather market ups and downs but can also help bring your investment portfolio into line with your broader investment goals.

Speaking of setting investment goals, you should always look to set clear goals before entering the market. Knowing why you are investing provides a framework for decision-making and can help you determine the appropriate time to sell your assets.

Keep an eye on your portfolio

You don’t have to check your investments every day. In fact, it’s very unhelpful to do that. However, checking them every six months or so can be helpful to keep track of how they’re doing.

This is because checking your portfolio every few months gives you a reality check on your financial goals and provides an opportunity to rebalance your assets. This is important as a diversified portfolio (spreading your bets) may drift from its original allocation due to varying price movements over time, so rebalancing it by moving your money around a bit, can ensure that your asset allocation aligns with your initial strategy.

Be comfortable with risk

Investing inherently involves risk, and acknowledging and embracing this reality is important.

Different asset classes carry varying levels of volatility so understanding your tolerance for risk is crucial. Whether your portfolio includes a mix of stocks, bonds, or more speculative assets, being comfortable with the inevitable market fluctuations is key to successful investing.

Keep the long-term in mind – investing really means keeping your money in products for at least five years, ideally more. And much of the time you will find that although the riskier products may go up and down in value quite wildly, over time the ups and downs smooth out and overall, you will make money.

…finally, get some knowledge.

If you’re stepping into the world of investing for the first time, then it’s a really good idea to get some knowledge as you go. Grasping fundamental concepts, staying updated on market changes, and consistently improving your understanding of investments can all play a role in helping you make well-informed decisions.

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