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How to Start Investing - A Beginner's Guide

· 6 min read
Sarah Vetter

If you want to learn the basics of investing, you've come to the right place.

This 7-step beginner's guide has everything you need to understand the basics of Investing. You will also find links to useful resources from our Finterion Blog, so you can kick off your own path to Investing mastery.

If you want to learn the basics of investing, you've come to the right place.

This 7-step beginner's guide has everything you need to understand the basics of Investing. You will also find links to useful resources from our Finterion Blog, so you can kick off your own path to Investing mastery.

Remember, this guide is not a replacement for thorough research and is no financial advisory.

Investing is the process of allocating resources, usually money, with the expectation of generating an income or profit.

  • Understanding Risk-Reward Trade-off: Higher potential returns often come with higher risk.

  • Diversification: Spreading investments across a variety of assets or asset classes to manage risk.

  • Power of Compounding: Earnings from an investment are reinvested to generate their own earnings.

  • Impact of Inflation: Aim for returns that outpace inflation to maintain the purchasing power of your investments.

  • Patience and Discipline: Investing is typically a long-term endeavor and requires patience and discipline.

  • Financial Advice: Always consider seeking advice from financial advisors before making investment decisions. This can help you make informed decisions and avoid common pitfalls.

02 Define your goals

Before you start investing, ensure to identify your goals and investment style. Your investment style is your philosophy which you want to follow when selecting investments for your portfolio. Your style typically is based on parameters such as risk tolerance, growth vs. value orientation and market capitalization (large-cap, mid-cap, small-cap).

Your risk tolerance may be on a scale between conservative, moderate or aggressive. At Finterion we currently only offer trades with cryptocurrencies. There are significant risks related to the investment with cryptocurrencies. Please ensure you remain informed of the potential risks.

03 Decide upon your broker and target assets

Deciding upon a market and target assets when trading cryptocurrencies involves careful research and consideration.

  1. Firstly, it’s important to understand the market dynamics of cryptocurrencies, which are influenced by factors such as technological advancements, regulatory news, market sentiment, and macroeconomic trends.
  2. Secondly, when choosing target assets, consider the project’s fundamentals, including the team behind it, its use case and technology. Additionally, the asset’s liquidity, historical price performance, and volatility should be evaluated.
  3. Lastly, always remember that diversification can help manage risk. However, it is crucial to note that cryptocurrency trading involves significant risk, and it is important to only invest what you can afford to lose.

03 Learn about Trading Strategies

A trading strategy is a systematic method to buy and sell assets in a certain market. A trading strategy is commonly built on predefined rules and criteria for making trading decisions.

There are typically three stages of trading strategies: planning, executing trades, measuring performance.

A trading strategy can be simple or complex. As such a trading strategy could consider indicators such as:

  • investment style such as value vs. growth,
  • market cap,
  • industry sector,
  • analysis,
  • technical indicators,
  • tax considerations,
  • holding period,
  • risk tolerance,
  • diversification,
  • best practices,
  • time horizon and
  • leverage

A trading strategy should be based on objective data and analysis. Market conditions and individual goals are subject to change. Therefore, a trading strategy should periodically be revaluated and adjusted as needed.

You can leverage backtesting to determine performance based on historical data. Nevertheless, past performance is never a guarantee for future success, especially under real-time market conditions which may deviate significantly from the test period.

04 Determine how much you want to invest

Deciding how much to invest depends on several personal factors.

  1. Assess your financial situation: this includes your income, expenses, and savings. This will help you understand how much money you can comfortably allocate to investments without affecting your daily life.

  2. Consider your financial goals: Are you saving for retirement, a down payment on a house, or your child’s education? The amount you invest may vary based on these goals.

  3. Consider your risk tolerance: If you are uncomfortable with the possibility of losing money, you might want to invest less and choose safer investment options.

  4. Emergency fund: It’s generally recommended to have an emergency fund set aside before starting to invest.

  5. Consult with a financial advisor: Always consult with a financial advisor to make informed decisions about your investments.

05 Define your Risk Tolerance

Here are some steps to define your risk tolerance when investing:

  • Self-Assessment: Understand your own comfort level with risk. Are you comfortable with the possibility of losing money in the short term for potential long-term gains?

  • Financial Capacity: Evaluate your financial capacity to bear losses. Can you afford to lose the money you plan to invest without it affecting your lifestyle?

  • Investment Goals: Define your investment goals clearly. If you’re saving for a long-term goal like retirement, you might be able to take on more risk compared to if you are saving for a short-term goal.

  • Time Horizon: Consider your investment time horizon. The longer the time horizon, the more risk you might be able to take on as you have more time to recover from potential losses.

  • Diversification: Diversify your investments to spread the risk. This can help reduce the impact of any one investment performing poorly.

  • Regular Review: Regularly review and adjust your risk tolerance as your financial situation, goals, and time horizon change.

  • Professional Advice: Consider seeking advice from a financial advisor or investment professional who can provide personalized advice based on your individual circumstances.

06 Build your portfolio

Everything starts with a first step. You might want to start small to get familiar with investing with trading algorithms. Never invest more than you can afford to lose.

07 Monitor and Rebalance your portfolio

Monitoring and rebalancing an investment portfolio are a crucial part of investment management. It involves regularly reviewing your portfolio to ensure it still aligns with your financial goals and risk tolerance. Market fluctuations can shift the balance of your portfolio, causing some investments to become a larger or smaller proportion of your portfolio than intended. To rebalance, you might need to sell investments from overrepresented categories and use the proceeds to buy more of underrepresented ones. It’s generally recommended to review your portfolio at least once a year or whenever there are significant changes in your financial situation or goals.

Rebalancing can have tax implications, so it is advisable to consult with a financial advisor or tax professional.