Objectively, I’d say I’m pretty good at maths. And while I’m not quite at Cady Heron’s level of Mathlete, I definitely know my way around a formula or two. But sadly for me and my measly bank account, that hasn’t yet translated into bulk wealth. Basically, I know how to save but I also love to spend, and I have no clue how to perform cash wizardry with investing.
In fact, to say I’m clueless about investing is, frankly, an extreme understatement. But since I’m technically a fully-fledged adult, I decided it was time to turn things around and learn the language of money.
First stop: figure out how to navigate the foreign land of investing.
To wade through all the confusing information, I begged online trading platform eToro to hook me up with one of their experts to help me tear open the door to investing. Enter: market analyst, Josh Gilbert.
Everyone, please give Josh a warm welcome, because he’s about to do his best to make investing make sense (a tall order). Here’s a rundown of things you need to know before you dive wallet first into the world of investing.
Exactly how much cash you need to get started
I was of the belief you needed thousands of dollars to get started with investing, but apparently, that’s not the case. There are a heap of online platforms that allow you to get started with whatever extra change you have lying around. But of course, while smaller investments have a much lower risk, they also have a much lower potential for gains.
“With eToro, the minimum you would need to buy a stock is $50USD,” explains Josh, reassuring us that you don’t have to risk a house deposit-sized chunk of change to get going. “You can start with small amounts and build on your initial investment as your knowledge and confidence grows.”
There are many different types of investing
Even as a beginner, there are many different types of investing to choose from. It’s helpful to know what you’re getting yourself into from the get-go, so here’s a cheeky rundown of what each one is so you can run off and do a deep dive on the one that interests you most:
It’s highly likely that you’ve heard of stocks (or shares). Essentially, they allow you to buy a share in a publicly-listed company — making you a shareholder. In short, this means you can own a teeny tiny piece of the money pie on companies like Apple or Facebook.
Exchange Traded Funds (EFTs)
Josh tells us that an ETF involves a selection of securities “such as stocks and usually tracks an underlying index.” Translation: ETFs are generally a lower-risk investment.
While the word commodities might sound as daunting as any other technical term in this article, it’s actually the simplest of all to understand. “These are raw materials that can be bought or sold and are driven by supply and demand,” says Josh. “Popular investment commodities are gold, oil, silver and copper.”
We’ve all heard of Bitcoin, but what actually is Bitcoin? Josh explains that cryptoassets (one of which is Bitcoin) are “a digital or virtual asset that is based on blockchain technology from a decentralised structure. Cryptoassets such as Bitcoin are used as a store of value but also as a currency that can be redeemed to purchase goods and services.” Still confused? Same. But I’m convinced no one really knows what Bitcoin is anyway, so proceed at your own risk.
Maybe you’ve heard acronyms like NASDAQ, DAX, or a reference to the elusive Dow Jones. These are all Index Funds. Also known as “stock indices,” they’re essentially a collection of stocks from different companies that measure the overall health of a market, and almost every major market in the world has one.
“Indices are a perfect way to invest in the overall movement of a certain stock market,” according to eToro. “If you think that an entire stock market is headed upwards or downwards, rather than investing in individual stocks in that market, you can invest in a representative sample of that market through an index.”
The Wall Street Journal explains that at its most basic level, “options” is a contract between two parties, guaranteeing that one party can buy specific stocks at a set price, for a set amount of time. In short: options trading is more complex, riskier, but potentially more profitable than investing in stocks.
The best place to start investing
If your eyes just glazed over reading through exactly what each type of investing is, now’s the time to tune back in. According to Josh, the best and most common place for a beginner to dip their toe into the investing pool is with stocks (also known as shares). “[That’s because] you can invest often, in companies we all know and use in our everyday lives,” says Josh. “Apple, Facebook and Amazon, for example, can be purchased using fractional shares and investing from as little as $50.”
How long it’ll take to see the gains roll in
The good news is that it doesn’t necessarily take ages to see some form of return on your investment, depending on which type you choose. But it’s important to keep in mind that your investments will fluctuate a lot, and also regularly. “Your investments will change when the market you are investing in is open,” explains Josh.
“For example, the US stock market is usually open in Australia at 1.30 am and closes at 8 am the next morning. This means you will see your investment value fluctuate in that time.” He adds that once you get a handle on investing, you will probably have different time frames where you prefer to invest — and this will determine your returns.
If I’ve learned one thing from the Barefoot Investor, it’s that investing is all about the long game and it isn’t a one-way ticket to rich town. Just as Josh suggests, do some research, dip your toe in and once you feel like you’ve got a handle on things, build up your portfolio.