Dear Happy Investor, what are the best ways to invest money for beginners? How to invest money with little to no risk? How does money investing finally work, and why not just save money? In this article, you will learn all about money investing. From the basics to the best ways to invest money for beginners.
On to financial success!
Let's talk about money investing for beginners. First of all, know that I have 8+ years of money investing experience. Started at the age of 23. Now 30'er and financially free. For several years now, I have been sharing my knowledge about money investing on this website. Also, offer courses and personal coaching to help people to successful long-term investing.
Why long-term investing?
Because this is the best way to invest money for beginners. And not only for beginners. Even advanced investors choose long-term investing.
It is important to make money work for you. That it becomes worth more over time. And we do this by investing money in quality.
First, a few important basics for beginners:
A good foundation is of great importance when investing money for beginners. Too often we see novice investors start with individual stocks, without having the necessary knowledge. The result: losing money.
Yes, investing in individual stocks and/or real estate properties is the best way to high returns. But beware: this requires knowledge and experience because the risk is also much higher.
Therefore, start with a lot of risk diversification. Choose investments that contain lower risk.
Starting carefully is not the best way to invest money. You miss out on returns. But to start with, it is safer to choose money investing without risk. Unfortunately, "without risk" does not always exist. We, therefore, speak of "little risk".
Investing money without risk is obviously a no-brainer.
We invest capital now so that we can fully enjoy it later in life. This is also how I started, and now financial independence is within reach. I could, if I wanted to, stop working at 40. The issue is not whether this is right or not. The point is that I have the choice.
A choice that you too can have.
To lay a good foundation, it's best to choose ways to invest money without risk. Or with little risk. Think of this as the foundation under a house. Building a home takes time. However, the first step is to create a strong foundation. We don't want our home to collapse in bad economic times.
And now, what is the best thing to invest in? As indicated, investing money for beginners is first and foremost about building a good foundation. We do this thanks to diversified assets. These are investment products that offer a lot of diversification. The three most popular ways are:
To start investing money, we would want to spread our assets among these three types of investments. Depending on age and risk level, you choose allocation policies.
Are you over the age of 50? In that case, it is wise to invest >50% in bond and real estate funds.
Are you in your early 20s or 30s? Then you could invest more in the best stocks.
On our website, you will find many knowledge articles about investing in funds. Usually, we use the term Exchange Traded Funds (ETF) for this. Read more about ETF investing here.
The amount to invest also depends on how much money you have and how much you need. Further on in this article, you can read the basics of investing money and how much it all can yield.
Once you gain more knowledge and experience, it is good to move into individual stocks and real estate properties. Stocks, in particular, can provide high returns over time. Let's take a closer look at this.
In my opinion, the best way for money investing is to invest in stocks. Real estate properties are also an excellent long-term investment. There are important differences though, and therefore my preference is for stocks.
As advanced investors, we can double or even increase our wealth tenfold with stocks. Especially when we make long-term investments in strong, healthy companies. In cases like this, returns of x5 or higher are not unthinkable. This is also how I became financially free: investing money in unique stocks of quality companies.
It is necessary, however, to acquire the right knowledge. For example, I made many mistakes in the early years. Even today, I still make some costly mistakes. This is okay. This is how we learn. This is how we get better. But of course, it's nice if you can avoid rookie mistakes. Learn how to analyze companies on a strategic level. Also, learn how to analyze stocks on financial valuation. Combine the two for the best results.
In summary, buy quality companies with a sustainable competitive advantage at a favorable stock price.
Could you use some inspiration? Check out our stock subscription for more information. We publish extensive weekly research on strong or unique stocks that offer potential x3 or higher returns. Also, thanks to the reports, you'll learn how to analyze stocks.
Investing money as a beginner can be difficult. The chance for mistakes is high which can lead to money loss. If you are a beginner and would like to invest, you can definitely use the tips below. Let's start with examples and tips on what constitutes a wrong or bad investment. And then we'll look at three tips for good investments.
Car: cars are the worst investment you can make. A new car drops in value by up to 10% when you drive it out of the garage. And every car just costs money instead of yielding something. Think of the expensive insurance, the purchase price, and gasoline. Of course you need to get from point A to point B, but why buy an expensive car? That is an emotional choice (social pressure, self-perception). Investing money, however, is a rational choice (and therefore more difficult). No, it is much smarter to save as much as possible on car.
House: your own home is not an investment. An investment is a deliberate action to receive a return in the future. On your own home, you can certainly get (a lot of) capital gains, but this is not actually an investment. Consider your house to live in. Smart tips with a house is to invest in solar panels, heat pumps, insulation and also pay off mortgage. These are examples of saving money, or minimizing costs thanks to investments. And that too is investing money.
Luxury products or services: expensive television, expensive branded clothes, expensive restaurants. People throw away bizarre amounts of money on luxury products or services. And all this to reward themselves and feel good. What bullshit. What is smart is to invest in yourself. This way you can make more money by investing in yourself. Examples are a home study, books or courses. This will give you more knowledge, and gaining knowledge is one of the best investments you can make!
There are plenty of examples about what good investments are. But to keep it short and sweet, I want to highlight three. These are my personal favorites when investing money for beginners, namely investing in knowledge, in real estate funds and in low-risk investments.
A personal favorite is investing money in knowledge. Knowledge is power, they say. But knowledge also provides tons of money, and more importantly: fun and satisfaction. If you have a lot of knowledge about something, you are good at it. Being good at something is fun and gives satisfaction (self-esteem). Especially when you have specialized knowledge, you can make a lot of money if you work in the right industry. This is also the case with experts. If you are an expert in your field, you will earn a lot of money anyway. This can be thanks to a high salary, or because he or she can apply interesting earning models thanks to the knowledge. Think of publications, speaking at conferences, promoting goods, et cetera.
Investing in knowledge is always good. And also for you it can lead to a much higher income or simply to making more money.
Besides earning more money, investing in knowledge is also necessary when you want to start investing. When making investments you do need knowledge. Because, by doing so you reduce the risk of bad investments and increase the chance of very good investments. For this I have a simple yet effective tip: read many books about investing, and further read all the articles on my website and subscribe to my newsletter 😉 .
A very good investment is in real estate and equity funds. Getting rich with real estate and stocks is and always will be one of the best ways. But especially if you are a beginner, it is not that easy. First of all, with real estate, you need a lot of money to buy a second home, especially in the Netherlands. Think of a starting capital of at least $30,000.
Secondly, you run a risk when you invest all your savings in just one house or apartment. Also, shares have a high risk.
Instead, it is safer to invest in a real estate and equity fund. And then preferably a fund with a large portfolio of leased properties or spread across thousands of companies.
In addition to funds, we also have individual shares, of course. These deliver higher returns, but require more knowledge. In fairness, this is the best investment. The downside is that the risk is higher. Don't get into that without investing in your own knowledge first.
Getting rich from investing money is easy for those with patience. When you start investing with little patience, you will (un)consciously choose high risk investments. But high risk means that you have more chances of losing your money. Low-risk investments, on the other hand, like the real estate fund above, reduce the chances of losing money. Typically, the higher the risk, the higher the expected return. But my advice is to play it safe. Choose low-risk investments. These provide a lower annual return, but offer more security of slowly yet steadily building compound interest on your investments.
Another rule of thumb is that the older you are, the less risk you should take. Take the stock market for example. This can be a great investment, but the risk is greater. For example, you may just be buying stocks before a crisis. Therefore, there are two things you can remember when investing. The first is by spreading your money slowly over time. Don't buy all the shares right away, but buy additional shares for 200 - 500 euros every month, for example. And the second is to always go for long-term investments with money you can miss. You have to take into account that you might have to wait 10 or 15 years, because of an economic crisis, before you get positive returns.
If you understand this, you also immediately understand that young people can take more risk than older people.
Suppose you have 1 euro. You may only spend this euro once. You have the choice between A or B. With choice A you hand in the 1 euro, and sooner or later you'll get more than 1 euro back. At choice B you will sooner or later get less than 1 euro back. Investing is that simple. Every euro you invest will sooner or later become worth more. This is the principle behind that money makes money. There is a reason why investing is the best way to make extra money. Not only do you ensure that your savings become more valuable, but this also happens while your income continues to flow in. That is a very desirable consequence of investing money. When you invest, you create multiple income streams. As a result, money comes in in different ways, so in addition to your salary, you also have your investments running.
The principle of investing is that you invest money in activities that generate more money, instead of costing money. By making smart choices in investing, about which more later, you can let your savings grow (exponentially). In the long run, this will give you more financial freedom, which will reduce your stress levels.
Now that you know what investing is, we can go on about the why. The why is not as obvious as you think. Because you may be thinking now: investing money is something you do because you want to get rich, or have more money. But why do you need more money? What is the real reason you want to create more money thanks to investing? The why is different for everyone. And if you want to start, it's good to find out for yourself what your why is.
This is important, because the why provides something to hold on to. It reminds you why you do it. Investing is not that easy. It requires a lot of self-discipline because in the short term you can do or buy less fun things. After all, every dollar you invest can't be used to buy anything or do fun activities.
My why with money investing is so I can enjoy more for life. Money is a means to me. It is not an end in itself. I use the means to invest so I can make more money without working. My focus is currently on investing in stocks. I supplement this with equity funds (ETFs). In a few years, I want to add real estate to this.
My long-term goal is to have more financial freedom. Because if I have more money, I need to work less, for example, so I have more time for valuable things like family, hobby, sports and personal development. Moreover, it gives me more freedom to decide what I do. If my monthly expenses are covered by my monthly income from investments, then I have all the freedom to decide what I do.
Think to yourself: what is your reason for investing? What is your why?
When people ask me how investing money works, I often tell them one of the best examples. And that is that thanks to investing money, you can live for free. Live for free? Well, that speaks to the admiration, because who would not want that. It really works like that with investing, and I'll explain it to you using a simple example:
Suppose your monthly salary comes in on the usual day. You know that after deducting all costs you can save about 1000 euros. Now you have two options (see above), where person A and person B. Person A invests the 1000 euros at an annual return of 10%. Person B spends the 1000 Euros on products and services, of which 100 Euros on a dinner with your partner. Person B has lost his money, but has short-term satisfaction. He or she has good food and lots of nice, new stuff in the house.
Person A, on the other hand, has to wait for a year, until he gets a return of 100 euros in a year (10% of 1000). At this simple moment, for which he just had to be patient, he gets 100 euros for free on top of the 1000 euros he invested. Person A can now go to the restaurant for free and also buy the same stuff as person B. The only difference is that person A has the self-discipline to wait a year, and he is rewarded for that. Moreover, he can also have the 1,000 euros tied up for a very long time. He then receives dividend upon dividend, or yield upon yield. We call this principle compound interest and it works as follows.
Compound interest is a process by which you get each to interest on interest. Interest can be interest, dividend or return. The basics are that thanks to compound interest you get interest on interest, or return on return. This is how it works: suppose you get 10% annual return on an account of 1000 euros. You decide to deposit the return every time back into that same account. It is not the case that you receive a return of 100 euros every year. It becomes more and more, thanks to compound interest. Because in year 1 you get 100 euros, and you have a total of 1100 euros. In year 2 you get 10% over 1100 euros, which is 110 euros. And in year 3 you get 10% over 1210 euros, which is 121 euros. Thanks to compound interest you get higher returns from your investment every year. And exactly this principle is how people become rich.
By investing a lot of money in combination with compound interest, it is possible to cover your monthly expenses with the monthly income from your investments. This is the point where you can actually retire. After all, you don't have to work for your investments. This point is different for everyone, and depends on your monthly expenses. Suppose you have 500,000 euros in investments at 6% net return. Then you will receive 30,000 euros in return annually. In basics, this is the time when you could retire. But more importantly, this is the moment when you are 100% free. From that moment on you decide 100% what you do and why. So if you decide at that moment to work 0, 2 or 5 days a week, you do it because you want to. Not because you have to.
By no means is everyone investing. There are a number of reasons for this, including lack of self-discipline, lack of knowledge, lack of vision and the fear of risk. Let's start with self-discipline and the Marshmallow test. See youtube for videos explaining it.
The Marshmallow test is an experiment where the researcher wants to show that children who can keep patience until the second marshmallow, are more successful in life.
Now don't immediately think of your child when it comes to the Marshmallow test. Because new research shows that it's not self-discipline, but the child's socioeconomic background that is important for school performance. Yet, no matter how you slice it, self-discipline does play a crucial role in investing. After all, you can only spend your money once. And if you invest it, you will have to wait years until you can reap the benefits. This requires a lot of patience and therefore self-discipline. And it is also true that the socio-economic background also plays an important role in investing money. Because a second reason that people do not invest is lack of knowledge.
Lack of knowledge about money investing is often accompanied by the fear of risk when investing. People just don't know how to invest. They don't know what investment options they have and what risk they're really taking. After all, why do you think people are suddenly leasing a lot of solar panels?
It's because the media has given this the publicity that it's a safe investment. And people also understand it because they know how it works. But the same goes for investing in the stock market, real estate or real estate funds. These investment options also provide (much higher) returns and the risks are manageable.
People who don't invest money leave a lot of money lying around. It's that simple. Investing money is easy money. But you do indeed need to know how to do that, because there are different ways to invest. In some ways you can make your money grow fast and a lot (because of high returns), but there you are also more likely to make mistakes (because of high risk). Other ways of investing are more stable and safe choices (low risk), but consequently also with lower returns that make your assets grow less quickly (low return). Nevertheless, this last way is the best choice for those who do not have knowledge of the business, but want to invest their money so they can enjoy it more later.
You do not have an infinite pot of money. So you will have to make the right choices about what and how much of your money you invest. My personal advice is that the more, the better. And preferably against low-risk investments. Saving is not one of them, because saving actually makes you poorer. No, you need a higher return than inflation.
That's a matter of being smart with money and choosing the right investments like the options at the bottom of this article. So now let's look at smart tips on investing money (for beginners).
What is investing? Now that you've read this article I'm curious how you answer this question. Will you let me know in a comment below? So we have seen what the basics behind investing is. Investing means to put money at the moment into activities that will make more money at a later time. This can be anything. So in this article we also talked about smart tips for investing and how it works. And we've also seen what bad investments are. Perhaps the most powerful conclusion about all of this, is that investing is a rational action. Being rational is harder than being emotional. Be aware of that. Because those who want to invest need self-discipline, knowledge, vision and patience.
Invest NOW so you can get more out of life LATER thanks to more financial freedom.
What are your personal experiences about investing? How do you view investing and have you already made or are you running investments? Be sure to share your experiences with me and others in a comment below. That way we can learn from each other and get better together!