What Does Investing for Beginners Mean?

Starting to make an investment means moving your money to try to get a positive financial yield. You have capital, someone else has an idea. By providing your money (temporarily), this idea could become a reality. It's therefore likely, though it can't be guaranteed, that you then receive a financial reward for the risk you run.

Risks of Investing for Starters

Investing for beginners is risky, as well as more experienced investors. Prices fluctuate and you could lose part or even all of your investment. However, it's possible to limit these risks. The main ways of doing this are:

• Diversifying investments across different asset classes.
• Opting for a long investment horizon.
• Low-cost investing.
• Not investing in leveraged products or products which otherwise use borrowed money, as often these are very high-risk and the risks are not very clear.

By sticking to this principle, you become a long-term, non-speculative investor. People who fall under the category of beginners in particular should stick to these clear, simple rules. Click here for more information about risk in the relevant section of our ETF Academy.

What Are the Investment Categories?

A whole range of investment categories is available. In practice, they include the following categories, which are some of the most common:

Importance of Diversified Investments

When you invest, you could lose the whole investment. In practice, this is a real risk only for people who invest in a very concentrated way, for example in one or a small number of securities in the same sector. By diversifying, the risk can be reduced without necessarily losing out on return. To do this, you need to invest in different products:

• Investment categories
• Countries
• Industries
• Companies or governments

Diversification is therefore a very important issue, especially in light of the subject of this page, “investing for beginners”.

Investing for Beginners as a Long-Term Activity

Since prices are volatile, it would be better to maintain investments over the long term. It would be a shame to get in when prices are high and get out when they're low. Some investors buy in for eternity, intending to pass on their portfolio after their death. By adding securities to their portfolio, they increase the flow of annual dividends. These dividends can for example be used for day-to-day expenses and consumer needs. The subject of dividends is also covered in detail in its own section of our ETF Academy.

Low-Cost Investing

It's important to bear in mind that investment costs can significantly reduce yields. Unfortunately, some managers are very good at creating expensive investment products with costs that are not very transparent. So looking at the small print is one of the details you need to pay attention to when investing, especially as a beginner.

When Should You Begin to Invest?

Is there a right time for investing for beginners? And to get out? There are countless managers who use historical simulations to show that their method leads to fantastic results. However, few, if any, of these methods have proven to work reliably in the future as well. As a result, it would be good not to "time the market", but to stay invested for a long period. Gradual entry, for example with a fixed amount each month, reduces the likelihood of investing all of your capital at a time when the equity markets are high.

Investing Through an Investment Fund or Directly?

For beginning investors, investment funds offer considerable advantages compared to buying securities directly:

• Generally speaking, you're more likely to have a diversified investment portfolio.
• You can invest in countries or sectors where it might be more difficult to buy directly.

But keep an eye on costs! ETFs are relatively low-cost investment funds. To find out more, consult our ETF Academy.