Why and how to start investing: A complete guide for beginners

Anyone with even a minimal interest in personal finance has surely come across the mysterious world of investing. Should it interest you? Why is it important – and how do you go about it? What is the best thing to invest in at all, and why? Don't be put off by the fear of losing money or by complicated financial terms, and find out in today's article how to go about investing.

Why even start investing?

Investing is a key tool for building wealth and achieving financial independence. It's a way to prepare for the future and secure a comfortable standard of living.

Some people want to grow their money before retirement, others are looking for a way to fulfill their dreams, such as buying a house or traveling. Regardless of the reason that brings you to investing, it's important to know how to start effectively.

The basics of investing

Before you start investing, it's important to understand the basic terms:

• investment risk – you'll come across this term often; it denotes the probability of future returns, or the uncertainty as to whether an investment will bring you a profit or a loss.
• risk vs. return – they go hand in hand: a higher return often means higher risk, and therefore a higher possibility of loss; it is thus highly suspicious if someone promises a "completely safe high return."
• time horizon – refers to the period for which you plan to have your money invested; the longer you can leave the investment in place, the more time your investment has to grow.
• diversification – means spreading investments across various assets in order to minimize investment risk.

A quick overview: What are the most common investment options

• Stocks or securities give you an ownership stake in a company. Joint-stock companies issue shares in order to raise funds for growth and day-to-day operations. When the share price rises, the value of your investment increases.
  The disadvantage of stocks, however, is their volatility (that is, instability) and the fact that companies can go bankrupt, which can lead to the loss of your money. That's why investing in stocks is riskier than, for example, investing in real estate.
• Bonds are loans to companies or government entities. When you buy bonds, you lend money to that entity for a certain period. In return, you receive a percentage of interest during the maturity period and, once it ends, your money back.
  Unlike stocks, bond prices don't change much, which leads to lower returns, but at the same time they're less risky.
• Mutual funds are a good choice if you're learning how to invest and don't want to manage your portfolio yourself. These funds are run by fund managers, who pool money from multiple investors and allocate it into a diversified portfolio of stocks, bonds, or other securities.
  This means you don't have to worry about choosing a specific stock or bond. Types of mutual funds include equity funds, bond funds, money market funds, and hybrid or balanced funds. When choosing a fund, don't forget to check its objectives, fees, and historical performance.
• Exchange-traded funds (ETFs) also offer a less demanding way of investing for beginners. These investment funds are similar to mutual funds, because they hold a mix of assets, such as stocks, bonds, or commodities.
• Investing in real estate often involves buying a building, a house, or land. However, if you don't want to own or manage a physical property, you can use real-estate funds or micro-investments in real estate with InvestBay. These methods make it possible to start investing even on a limited budget. But we'll tell you more about that further down in the article.

TIP: Easily calculate the return on your investment, the appreciation, and the yields with our investment calculator!

How to start investing?

If you're new to the world of investing, we have 6+2 pieces of advice for you:

1. Clarify what you want to achieve through investing. Is it saving for retirement, buying a property, or "just" securing a financial reserve? Short-term and long-term goals will influence your strategy.
2. Create a financial plan: Before you start investing, it's important to have a clearly defined budget that takes into account not only investments, but also savings and any debts. Investing should never come at the expense of financial stability.
3. Understand your risk tolerance: Consider what market fluctuations you're willing to accept. Even though investments are a great tool, it's not worth losing sleep and your nerves over them.
4. Diversify your portfolio: Spreading investments across different asset classes (stocks, bonds, real estate, etc.) reduces the risk of loss and increases the chance of stable growth. Diversification helps offset losses in one sector with gains in another.
5. Regularly review and adjust your portfolio: Regularly check whether your investments match your goals and risk profile. If your situation changes (e.g. a change in income or life goals), adjust your portfolio.
6. Consider the help of a financial advisor: If you're not sure about your decisions, consider consulting a professional financial advisor, who can help you put together an effective investment plan tailored to your needs.

At the same time: There is no universal approach to investing. It crystallizes only over time with your experience and knowledge. But it's definitely very useful, right from the start, to know the risk and return characteristics of each investment option.

Two essential pieces of advice from us at InvestBay

We already mentioned them in our article explaining how and what to invest money in. But we consider them really important – and repetition is the mother of wisdom.

7. Don't time the market. The sooner you start, the sooner your money can grow. So don't wait until the interest rate is lower / until "it drops" / until the exchange rate is better…. Especially if you're thinking about investing from a long-term perspective (10 years or more), waiting doesn't pay off.
That's exactly why it can be wise to start right away, with small amounts and low risk. There are several ways to achieve this – for example through crowd-owning or micro-investments.

8. Stay calm when the markets happen to be falling. You'll experience plenty of ups and downs on your investment journey, and as an investor you have to come to terms with that. If you stay calm and resist the urge to sell your investments during a downturn, the probability increases that you'll ultimately turn a profit over the long term.

Micro-investments as a great way to start investing

Micro-investments and crowd-owning represent excellent opportunities for novice investors, thanks to their accessibility and flexibility. They allow easy access to the market with minimal risk and costs. Thanks to platforms like InvestBay, getting started with investing is easier than ever before.

TIP: In our article on how and where to invest small amounts, we also described a step-by-step procedure for how to invest through our platform.

How to start investing in real estate through micro-investments

Investing in real estate is generally considered a stable investment. But it's clear that you don't always have enough capital, or the appetite, to fight your way through bureaucratic hell.

In this case micro-investments come onto the scene, where even beginners or individuals with limited capital can get involved in the real-estate market. With InvestBay you can invest in real estate both here and abroad from as little as 2,500 Kč, but of course it holds that the more you invest, the higher the absolute return you get. The estimated annual return tends to be around 8% and more – you'll find out the specific value for each project separately.

TIP: Take a look at the current investment offering.

The advantage of this kind of real-estate investing is the ability to generate steady rental income (without significant active effort) and profit from the sale of the properties. This type of investment provides a stable form of growth and is ideal for those who want to increase their wealth over the long term without having to follow market developments every day. And on top of that, to draw on a mountain of further benefits:

• At InvestBay you are indirectly a partial owner of the property with all the advantages and have your investments fully under control.
• You're part of the decision-making process about essential matters.
• You can go to the properties on holiday at a discount of 5–15% on the rental.
• When investing in real estate on InvestBay, you buy partial fragments of the property directly (unlike, for example, mutual funds, where as an investor you buy a unit certificate of the given fund and thus entrust your money to the fund manager).

…and much more.

Read about how it works at InvestBay and how InvestBay pays out money.

How to learn to invest and manage your portfolio

The investment market is constantly changing and it's important to keep educating yourself. Start, for example, by reading our expert articles on the InvestBay blog. We try to present the information to you as clearly as possible.

Keep in mind that investments are a long-term matter. As we've already written above, don't try to time the market and instead focus on your long-term goals.