Where to start investing: tips for newbies 

2023 may be the best time to start investing, precisely because of the lack of consensus around this year’s current economic situation. Inflation will moderate but remain far from the 2% target. Interest rates will continue to rise (although not at the pace they did last year). And the markets could finally have a happy ending at the end of 2023 if there are not too many exceptional events (even contemplating a stagnation on the stock market or falls in values due to an adjustment of companies’ profits).

Even so, any financial advisor would tell you you have a chance today. And that leaving it for tomorrow to look for the best time to go public could make you lose some of the profitability that you want to get out of your savings. But don’t run, because first, you have to learn to walk. Walking in the investment world is equivalent to knowing your risk profile, drawing up a long-term strategy, and choosing the best product for your financial objective. From there, all that remains is to continue contributing to your plan, diversify your portfolio, update your profile to fit your risk tolerance and embrace financial freedom (if that’s what you want).

To do this, We have built this guide to start investing, which will guide you through every step you have to take before putting your money to work for you. Of course, if you still have to build the habit of saving, then take a few minutes to review the Guide to Start Saving. Although you can start investing with very little wealth, financial advisors advise against starting without healthy personal finances. 

How much money do you need to start investing?

It’s time to differentiate between emergency funds and initial capital. 

  • Emergency fund: an emergency mattress that covers at least 3 to 6 months of fixed expenses. For example, if your fixed expenses are 1,000 USD per month, you have to have between 3,000 and 6,000 USD in your savings account, even if they lose value with inflation.
  • Initial capital: the amount of money you can deposit in a financial institution to invest. Today, you can start investing with only 100 USD a month—even with one euro if you decide to put your money in the sack of cryptocurrencies.

How to calculate your risk profile

Your risk profile defines what your risk tolerance is. That is, how much you can endure in a situation in which you are in danger—in this case, with your finances. When you invest, you run the risk of losing part or all of your invested capital. There are three types of risk profiles: conservative, moderate, and risky. But you will always belong to different categories. As time passes and your investments evolve, you can adjust your risk tolerance. As a general rule, young people take more risks, and people close to retirement are looking for more stable and guaranteed investments with less risk.

Six questions you have to ask yourself to calculate your risk profile:

  • What is your net worth?
  • How much money do you need in your emergency fund?
  • What is your financial goal?
  • How much money do you have to start investing?
  • How long do you plan to invest (at least)?
  • What level of risk are you willing to take?

On this last point, it is essential to emphasize that you not only have to consider what you can afford to lose, which is the objective risk, but also your emotional capacity to face risky situations, which is the subjective risk.

What is the best time to start investing?

As we mentioned before, it is always a good time to invest, but the key is why: the sooner you start investing, the more time you will give your investments to pay off. In some types of investment, this factor is more or less important:

  • The term is much shorter in alternative investments (such as branded bags) or speculative investments (such as stock trading or cryptocurrencies).
  • In collective investments (as in investment funds), time is your great ally. The more time invested, the higher the return on your initial capital or your periodic contributions, and the more your money will be multiplied with compound interest working in your favor.

How to design an investment strategy in 6 steps

Your investment strategy will depend mainly on your financial objectives, which will determine how long you will be investing your money. With the combination of your economic purpose and the characteristics of your risk profile, you will opt for some investments or others. This is the step-by-step process you have to follow to design your investment strategy from scratch:

1. Write down your investment strategy.

You’ll need to keep a record of your strategy. Being clear about why you chose this financial objective, how you want to achieve it, and what risks you may have to take will help you control your emotions at the moment when the market turns against you, or you make a mistake when investing and you have to start over from scratch, which is the best way to learn, according to the advisors.

2. Invest only in what you know.

The first thing you have to do is be very clear about your basic notions about the type of investment you want to make. There is an unwritten rule in the investment world: “Invest only in what you know.” That financial product isn’t for you if you can’t describe it. 

3. Respect your risk profile.

You want to attend the tutorial. Investing may seem like a game, but what is at stake is your future. Unless you have nothing to lose, don’t invest beyond your means. That is, avoid going into indebtedness or taking more risk than is recommended for your risk profile.

4. Be faithful to your financial goal.

Your financial goal is the goal that will define when, how, and where you want your money in a certain period of time. Starting from the most important thing: how much money you need. In Spain, the most common objectives are purchasing a house or a new car, educating the children, or early retirement. That is, terms of 5, 15, and up to 30 years 

5. Check your investments.

Assuming that you have a personal budget to update once a year, it would be best to review how your investment has gone and, if possible, what you value and what else you can do to improve your strategy. A salary increase or a National Lottery prize could lead you to increase your invested capital and achieve your financial goal ahead of schedule.

Of course, financial advisors advise not to stop investing if the market is suffering from the economic situation at that time. In the long term, that fall will be nothing more than an anecdote. If you pause your investment or leave the plan on schedule, you could lose some of the money invested.

6. Build a diversified investment portfolio.

By reviewing your strategy and adapting your risk profile, you will have more opportunities to expand your investment portfolio—the set of assets in which you invest your money. However, your portfolio will have to meet the following diversification criteria so as not to jeopardize the rest of the investments:

  • Typology of financial assets, or what is known in English as strategic asset allocation 
  • Geographical areas or nglish as strategic asset allocation

What types of investments are there?

Investments are assets or financial products you acquire to generate new income or appreciate. There are investments for each profile, i.e., with more or less risk. Each of them offers a return over a certain period. And it is up to you to thoroughly investigate which best suits your risk profile and financial objectives. But, so that you don’t have a world, at Business Insider Spain, we have asked 7 financial advisors what the ideal financial products to start investing in right now are: 

Below, you will find a list of the main types of investments that exist:

Investments in fixed income

  • State bonds and obligations
  • Treasury Bills.
  • Promissory notes from companies.
  • Subordinate obligations.
  • Mortgage or asset securitizations.
  • Mortgage bonds.
  • Territorial IDs.

Investments in securitizations. Mortgage

  • Raw materials.
  • Investment funds.

Investment Funds

  • Mutual funds.
  • Indexed funds.
  • Ordinary funds, which invest primarily in fixed-income, equities, or derivatives
  • Fund funds, which invest primarily in other investment funds.
  • Subordinated funds, which invest in a single investment fund.
  • Exchange-traded funds, or ETFs.
  • Real estate investment funds.
  • Alternative investment funds, or hedge funds. 

Real real estate

  • Housing.
  • Rent.
  • Flipping houses (buying houses to renovate to multiply their value) and

hybrid products

  • Preferential shares.
  • Bonds and convertible bonds.

Derivative or value) and hybrid products Preferential sha

  • Contracts for the purchase and sale of options
  • Financial contracts for differences (CFDs)

Other financial for the purchase and

  • PIAS (Individual Systemic Savings Plan)
  • Certificates of deposit (CD)
  • Retirement cts Crowdfunding. PIAS

How do investments affect the income tax return?

Savings are also taxed on the income tax return. Depending on the product type, it will be taxed as a return on movable capital, such as dividends, or as a capital gain or loss, such as the purchase and sale of shares or investment funds.

Most financial products are subject to five personal income tax brackets: 

  • 19% for the first 6,000 USD.
  • 21% between 6,000 and 44,000 USD.
  • 23% between 50,000 USD and 150,000 USD.
  • 27% for more than 200,000
  • 28% for 300,000 onwards.

Although private pension plans have the right to deductions, 1,500 USD is exempt.  For this exercise, the new Temporary Solidarity Tax on the Great Fortunes must also be taken into account, which taxes the net worth of natural persons over 3,000,000 USD and will be applied throughout the Spanish territory.

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