Thinking About Investing but Feeling Unsure? Here’s How to Get Started…

You’re ready to invest, but something’s holding you back. Maybe it’s the thought that you don’t have enough money, uncertainty about how investing works, or a fear of losing what you put in. These are valid concerns, but they don’t have to stop you. Let’s tackle them one by one.

Do You Need a Lot of Money to Invest?

A common misconception is that investing requires thousands of dollars. The truth? You can begin with as little as $500 and gradually grow your portfolio with smaller, regular contributions.

Many investors use an automated investing plan to consistently add to their holdings, leveraging the power of compounding returns over time. This strategy not only builds wealth steadily but also smooths out market fluctuations by averaging the cost of investments across different times.

Diversifying your investments across various asset types further helps to reduce risks and minimize potential losses.

Where Should You Invest?

The sheer variety of investment options can feel overwhelming, especially if you’re new to financial markets. But starting doesn’t have to be complicated. Focus on four key principles for successful investing:

1. Set Clear Goals: Define your financial objectives and craft a strategy to achieve them.

2. Diversify Your Portfolio: Spread your investments across different asset classes to manage risk effectively.

3. Prioritize Low Costs: Target low-cost products to keep more of your returns.

4. Stay Disciplined: Be patient and committed to your long-term plan.

To simplify decision-making, many investors opt for low-cost diversified funds. These professionally managed portfolios combine multiple asset classes—like shares, bonds, property, and cash—providing a balanced mix of growth and income potential.

If you’re uncertain about your strategy, consider consulting a financial adviser. They can help you identify investments aligned with your goals, preferences, and risk tolerance.

What If I Lose Money?

The fear of loss—known as loss aversion—is one of the biggest barriers for new investors. It’s true that all investments carry risk, and market downturns can be unsettling. However, history shows that disciplined investors who stay the course tend to fare better in the long run.

Take 2020, for example. When COVID-19 triggered a dramatic market drop, many who panicked and sold their investments locked in losses. Yet within six months, markets had not only recovered but surged to near-record highs. Those who remained invested reaped the rewards.

The lesson? Short-term volatility is part of the journey, but diversification and a long-term perspective can help you weather market fluctuations. Tools like the Vanguard Index Chart highlight how disciplined investing across various asset classes consistently delivers robust returns over time.

Before investing, research thoroughly and ensure your portfolio is well-diversified to reduce risks and safeguard against losses.

By addressing these common concerns, you’ll feel more confident taking the first step toward investing. Start small, stay informed, and focus on the long term. With the right mindset and strategy, your money can begin working for you today.

Rick Maggi CFP, Financial Advisor (Perth), Westmount Financial

(Excerpts taken from Vanguard Website - 27 November 2024)