Step Five: The First Investment

So How To Start Your First Investment?

Once you’ve fortified your savings accounts and established a safety net for emergencies (as discussed in step four), it’s time to delve into investments. However, before committing all your funds to a particular investment, it’s crucial to determine how much money you can and should invest on a regular basis. While investing as much as possible as soon as possible is ideal, not everyone is comfortable with their life savings experiencing daily fluctuations. For instance, if your investments are in cryptocurrencies and your savings plummet by 30% on a Wednesday, surge by another 50% until Friday, only to drop over the weekend for no apparent reason, it can be unsettling. It’s important to note that you don’t have to allocate all your funds to the most volatile assets; instead, consider investing in more stable options.

Ratio Investments And Savings

Depending on how comfortable you are, seeing your investments bounce, you can adjust your savings-to-investments ratio. For example if you are checking stock pricing every day, maybe you should have more of a 50/50 ratio, to calm yourself. If you are checking your stocks once a week, you might go for the 70/30 ratio, having more investments than savings. If you forgot to check your stocks in the last two month, you could go for 100/0 ratio, because obviously the worst thing that can happen is to lose some money and you clearly do not care.

How Much Of Your Income To Invest?

It is widely considered to aim for at least 20% of your monthly income for your savings and investment. Now depending on your preferred ratio between savings and investments, split these funds accordingly. If for example you would have a 80/20 ratio and you would like to split $ 500,- a month, send $100,- to your savings account and $400,- to your investments. Do not forget to send about $60 extra to your “Unexpected Things”-Account. Within a year you will have $4.800,- invested and $1.200,- in your savings account. Any extra money that you get or if you do not use the money from your “unexpected things” account, can be transferred to your “extra money” account and be used for anything that makes you happy.

Time For Your First Investment

Your investments need time to be able to gain some interest, but it will also take some time to actually pay off. If you have limited time until you will need your money, there is always a chance that your stocks or cryptocoins are at a low at this specific time, leaving you with a loss in your investments instead of a win. Time will help you to minimize this risk. If for example you would stay invested in the stock market for at least 15 years, there is a very little chance, that you would make a loss, as the global stock market is on average always slowly growing.

Diversification Reduces Risks

If you put all your money in one specific share (for example Apple, Amazon, Alphabet, Tesla, … or maybe some russian oil industry shares?) there is always a higher risk, than if you would own several different shares. It would be best to not have all your money invested in one company, in one country, in one piece of real estate or in one big block of gold. Imagine gold prices drop for 30% for the next 5 years. If all your money is invested in gold, you would probably not be happy about that. If at the same time the stock market is gaining 10% each year, you would like to be invested in the stock market, but you cannot sell your gold without making a huge loss. So diversification means spreading your investments and have different assets or different shares.

The Best Product For Your First Investment

For Your First Investment, You Should Aim For Several Things:

• First of all, always invest in a product, that you fully understand. Gold, real estate, stock market and government bonds are easy to understand. If you do not have any idea, what the product is actually about, but someone praises the high revenue – do not consider it for your first investment.
• Diversification
• You should not need a huge amount of money to start of with and it would be best to be able to invest small amounts on a regular basis.
• It should have an average growth that is higher than any savings account – because why should you take any risk with your investment, if you can have 2,5% interest with a risk-free savings account.
• It should not be too risky, because you want to take steps at a ladder and not gamble with your money
• It should be beginner-friendly and not overcomplicated
• Low maintenance costs or service fees

Start Investing In An Accumulating World ETF

Choosing an accumulating exchange-traded fund (ETF) as a first investment can be a strategic decision for many reasons, especially for the average citizen who may be looking for a simple and efficient way to start building wealth. Historically, broad market indices such as the MSCI World Index, which represents developed markets worldwide, have shown average annual returns in the range of 7-10% over the long term. It’s crucial to recognize that these figures are based on historical data and that actual returns can deviate from historical averages.

Here are several reasons why an accumulating ETF might be a suitable first investment:

Automatic Reinvestment

Accumulating ETFs automatically reinvest any dividends or interest income back into the fund. This feature simplifies the investment process, as investors don’t have to manually reinvest dividends. Automatic reinvestment can harness the power of compounding, leading to accelerated growth over time.

Long-Term Growth Potential

For individuals in the early stages of their investment journey, prioritizing long-term growth is often a key objective. Accumulating ETFs are designed for investors with a focus on capital appreciation. By reinvesting earnings, these funds compound returns, potentially leading to significant wealth accumulation over the years.

Simplicity and Low Maintenance

Accumulating ETFs offer a straightforward investment approach. Once you’ve chosen the fund that aligns with your investment goals and risk tolerance, there’s minimal ongoing maintenance required. This simplicity is particularly appealing for beginners who may be unfamiliar with more complex investment strategies.

Diversification

Many accumulating ETFs provide broad market exposure, allowing investors to diversify their portfolios across various asset classes, industries, or regions. Diversification helps spread risk and can enhance the stability of an investment portfolio.

Cost-Efficiency

ETFs, in general, are known for their cost efficiency. Accumulating ETFs often have lower expense ratios compared to actively managed funds. This cost-effectiveness can result in more of your investment returns staying in your pocket over the long term.

Passive Investment Strategy

Accumulating ETFs typically follow a passive investment strategy by tracking a specific index. This approach eliminates the need for active management and stock-picking, making it suitable for investors who prefer a hands-off approach or lack the time and expertise for active trading.

Tax Efficiency

Since accumulating ETFs automatically reinvest dividends, investors may experience fewer taxable events. This tax efficiency can be advantageous, especially for those in lower tax brackets who may benefit from deferring taxes on capital gains.

Liquidity and Accessibility

Accumulating ETFs trade on stock exchanges like individual stocks, providing liquidity and ease of access. This makes them an attractive option for investors who want the flexibility to buy or sell shares throughout market trading hours.

Educational Value

For beginners, investing in an accumulating ETF can serve as an educational experience. It introduces fundamental concepts such as diversification, compounding, and the power of passive investing.

Low Initial Investment Requirements

Many accumulating ETFs have low minimum investment requirements, making them accessible to a broad range of investors. This is particularly beneficial for those who are just starting to build their investment portfolios.

---

The money is not gone, it just belongs to someone else!

Baron Amschel Mayer Freiherr von Rothschild (1773 – 1855)

Stepping Up The Ladder

To reach the next steps, you need to be consistent within the next years! read on to find out how to make the money work for you instead of working for your money. Keep reading about your future passive income!