If it’s your first foray into investing and you’re feeling overwhelmed, you’re not alone. Most new investors feel apprehensive about making a bad investment decision.
To help improve your chances of success, we’ve put together a checklist with five steps to consider before you invest for the first time.
Step 1 – Determine your risk profile
All investments come with a degree of risk. Every investor has a different risk tolerance that influences where and how much they are comfortable investing.
As a first-time investor, you might prefer to exercise caution and start with a smaller amount. Once you strengthen your investing muscle, you might start to feel more confident choosing higher-risk investments.
Step 2 – Decide how long you want to invest for
To decide on an investment period, you first need to determine your reason for investing.
Do you want to save money for emergencies? If so, that’s a short-term goal. Or do you want to build wealth for retirement? If so, that’s a long-term goal.
Once you’re clear on your objective, you can choose an investment period and strategy to match.
Step 3 – Choose an investment strategy
Choosing an investment strategy becomes clearer once you’ve determined your investment goals and risk profile.
For example, if you’re looking to build an emergency fund, it might make sense to invest the money in a savings account or term deposit, which are essentially free of risk and volatility.
If you’re looking to build wealth for retirement, it might make sense to invest in shares or ETFs (exchange-traded funds) which can be volatile in the short-term but may be profitable in the long-term.
Step 4 – Do your research
Research is one of the most important steps in investing, especially if you’re considering higher-risk investments.
If you’re buying shares in a company, some useful questions to ask are:
- How stable is the company and the industry they operate in?
- Are they stagnant or innovative?
- What is the company’s outlook? Are their products/services likely to be in demand in the future? Are there opportunities to expand and grow?
If you don’t feel you have the ability to pick individual companies, you can buy units in a broad-based ETF that invests in a sector (such as US technology) or a wider market (such as the Australian stock market). You still need to do your research, but it becomes less critical.
Step 5 – Select a broker or trading platform
You have two broad options to choose from. If you want someone to hold your hand through the investing process, you can hire a professional stockbroker who will advise you on which investments to choose. If you feel comfortable managing the process yourself, you can register with a low-cost, easy-to-use online broker like Superhero.
With Superhero, you can easily invest and track your shares’ performance. Invest with $0 brokerage to buy Aussie ETFs ($5 to sell), $5 brokerage for Aussie shares and $0 brokerage for U.S. shares and ETFs. Join today and start investing with just A$100.