Investing Basics: Everything You Need to Know to Start Making Your Money Work Harder

To make your money work harder, you need to do more than simply spend it. Spending it is essential, of course, but it’s only when your money starts working for you that you can finally start building a solid foundation for yourself. At a minimum, this means ensuring that the money you’re saving goes into a savings account, but that’s not the only way to make your money work harder.

Investing can help you grow your wealth and is used by every single wealthy individual alive today. It isn’t a guaranteed get-rich scheme, of course, which is why you need to go in with a solid strategy and the tips from this beginner’s guide.

Know the Terms and the Basics

The first step to investing is to simply understand the basics:

1. You buy shares in a company. If those company share prices increase, you could make a profit if and when you sell. Many companies also pay out dividends (a share of their profits) to shareholders, meaning you get money simply for having the share.
2. Bonds are backed loans you give the government or a company. In exchange, they pay you back a regular amount at a fixed rate. Government bonds are the safest, as they are never defaulted.
3. Mutual Funds, like the FTSE 100, are like baskets in that they include many smaller shares of big companies, bonds, property, and commodities in one fund. This is where beginners should and do usually start.
4. Exchange-traded funds are similar to mutual funds, but instead focus on stock exchanges.

The most important lesson to remember when starting out with investing is to diversify. This way, if one investment tanks, you have others that can keep you going.

Only Invest Money You Can Afford to Lose

As a general rule of thumb, you should only invest the money you can afford to lose. To figure out what that amount is, you’ll need to first work out your budget, factor in an emergency fund, and even add a regular savings pot to go with it. Everything after that, however, can be invested. If you need help understanding how to reduce your outgoing costs, or want more individualized investment advice (or even have a professional do the investing for you), then you’ll need to get financial planning advice from a certified advisor.

Investment Portfolio Strategies

There are many investment portfolio strategies you can use, but many require an in-depth understanding of the stock market and the companies or assets traded within. It’s why the ultra-wealthy pass this off to full-time investment specialists. As a beginner, you won’t use these strategies. Instead, you’ll want to try:

1. Passive investments, where you make automated contributions to an index fund.
2. Buying government-backed bonds.
3. Relying on a professional to invest on your behalf.
4. Only investing money you have left over.

You don’t need a substantial amount of money to get started. You can begin investing with as little as $100, and as the stock market has been growing at a far faster rate than savings accounts, you may be able to see that $100 grow quickly, at which point you could sell and diversify, or hold and hope it continues to increase.