This post may contain affiliate links. That means that if you click on a link and purchase something I recommend, I will receive a small commission at no extra cost to you. As an Amazon Associate, I earn from qualifying purchases. This helps keep my website up and running and is very appreciated. Thank you for your support!

Investing: The Secret to Fitter Finances

Today’s post is a guest post on investing for beginners by The All Round Investor.

A lot of people associate investing money with old, rich men.  Honestly, that’s far from the truth.  By learning to invest your money, you’ll not only reap benefits for years to come – but you’ll gain a stronger understanding of your finances.

One of the things that a lot of people don’t realise, is that investing is pretty simple.  There are lots of different ways to invest – using property, the stock market, or potentially, crypto-currency.  For a beginner – there are lots of easy options. 

Whether you want to micro invest or start off with something bigger, the stock market is one of your best starting places.

No time to read now? Pin this post on investing for beginners for later! 📌

Why should you invest?

Investing gives you the opportunity to have a strong rate of return on your money.  In other words – it lets your money grow in value over many years.

$10,000 invested now, could reach a value of over $75,000 in 30 years’ time.  This would require an interest rate of 7% – and you’d need to leave the money untouched for the entirety of this period. 

Not only will that give you a nice cushion for later in life – but you’re getting free, passive money.

Another huge reason to invest your cash is to save for your retirement. Different countries internationally have different levels of social securities and pensions.

Fundamentally it’s important to save up money for your retirement.  When you’ve stopped working, you can then live off this money and enjoy life without working.

Now, it’s possible to save for retirement without using any investments. But it’s easier to use investing to grow your cash.  For example, my current interest rate in the UK (for two different savings accounts) reaches a grand total of 0.01%. 

To use our $10,000 example, in 30 years’ time, I’d have $10,030.04.  That’s a pretty big difference in the long term – particularly with purchasing power decreasing annually.

Another key reason to invest your money comes from inflation.  This means that the value of your money goes down. 

Most countries aim to keep the rate of inflation between 2% and 2.5%.  The impact this has on your money is pretty huge.  Your $10,000 in 30 years’ time will have a real value of $5566.17.  

So, not only do you lose out on free money – but you lose money in real-terms when you don’t invest.

Basics of the stock market

The stock market is an online marketplace. While most online markets trade in products, the stock market is different.  Every day, there are millions of transactions relating to stocks. People can buy and sell them, and their value can change over time.

Most countries have one or more stock marketplaces. These are known as the stock exchange. You may well have heard of the New York Stock Exchange, or perhaps the London Stock Exchange. 

Now, here it is worth differentiating between a stock market and a stock exchange. The terms are often used interchangeably, but this isn’t always correct. 

If somebody trades on the stock market, it means that they trade stocks. This may be across a number of different exchanges.  If somebody buys a stock, they must do it through a stock exchange. Together, these exchanges form a market.

For example, in the USA there are the New York Stock Exchange, and the Chicago Board Options Exchange – and these two exchanges together form the American stock market.

To complicate things, we can trade more than just stocks on a stock market. They often deal with commodities and bonds, too.

Both of our definitions above have relied on a single word – a stock.  To properly understand the stock market, we need to know what it is that we are able to trade.

A stock, also known as an equity, is a representative part of a corporation. In other words, it is a security to represent the fractional ownership of a company. 

What this means is that when you buy a stock, you are buying a fraction of a company. That fraction could be high based on the number of stocks available for that company, or the amount of money you pay in. 

When you buy a stock you are buying a proportion of the company’s assets. This then means that you are entitled to some of the profit.

If you buy more than one stock in a company, you own shares in it.

Micro-investing

Micro-investing offers the average person an easy entrance into investing.  Platforms that offer this form of investment give their users the opportunity to gain money, rather than locking it away in low interest saving accounts.

These platforms let people invest with $10 – or sometimes, even less.  In a fantastic move for financial equality, the impacts of compound interest above 1% is possible for the masses.

Another key difference in micro-investing is that it can be possible to round up your spending.

For example, if you spend $2.50 on a coffee, then the leftover $0.50 will go into your investments.  In the US the most popular app for this is called  Acorns, and in the UK both Wombat and Moneybox are fantastic services.  

This is a fantastic service to help you save – and invest – your money often.   A lot of us struggle with budgeting and saving money, and these apps produce a quick and easy way to save, whilst you spend.

Moneybox also gives you the option to regularly invest – so you can set it up to take $10 on each payday of the year.

If, for example, you had a weekly $10 deposit, with $5 in rounded-up payments weekly, you could save around $780 in a year.  With a 7% interest on your investments, then it’d be possible to save over $10,000 in 10 years.

For a lot of young people, this money would go a long way towards a house deposit – in savings that occur entirely passively.

Benefits and Disadvantages of micro-investing

Micro-investing has benefits beyond growing your money in the long term. One particular benefit is the ability to buy fractional shares. 

For example, if you want to buy a stock in Amazon (~$3000 value), you could invest $10, and own a tiny amount of the individual stock.  This would allow you to benefit from the growth of the company, but without needing to fork out huge sums of cash.

Not only does this make investing much more accessible, but it’s possible to start investing in big companies with just a few dollars.

A second cost of investing comes in the form of fees.  Companies who act as brokers between the stock market and the individual require a cut of your money.  This is true for both micro-investing and more traditional investing. 

As micro-investing deals with smaller amounts of money, they have lower fees. Wombat, for example, has no fees until you reach the £1000 mark in your investments, while Acorns has a cost of $1/month – far below the benefits you’ll gain from using their service.

Micro-investing, however, is not perfect. Some downsides come from the fact that with small amounts of money, a decent interest rate will still not amount to much.  The fact that your money is making money means that the more money you put in, the more you get out.

If we return to the example earlier in the article – in which there was a weekly $10 deposit and $5 roundup – the value of this investment would total just under $330,000 in 50 years’ time. While that is a lot of money, it won’t be enough to retire.

Taking it further

We’ve acknowledged above that one of the issues with micro-investing is that small input results in a small return.  In my opinion, it’s important to gradually move beyond micro-investing.

This is a little less easy to implement.  When using micro-investing apps, the companies often decide where to place your money – but when you invest for yourself, you have more control in the decision-making process.

This means that it’s important to educate yourself on the stock market, and gradually learn to understand more.  One way to do this, is to set up a fantasy portfolio.  Some trading apps allow their users to make mock-investment decisions and see their fake money grow. 

By using real-time stock market data, it’s possible to learn to make your own decisions.  You can take time to practice investing with index funds (which the legendary investor Warren Buffett swears by). 

Another useful way to educate yourself further on the stock market is to regularly read a selection of financially focused blogs. 

There are numerous financial blogs that cover a range of topics, but all will allow you to learn more about financial markets and how to invest beyond micro-investing inside apps.

If you’re not a fan of finding blogs for yourself, then newsletters such as Camp FIRE Finance and Personal Finance Blogs are a great bet. They will give you a daily selection of the best, most informative posts from different finance blogs.

Most importantly, you should give it a try.  Investing can only really be learned through action – and by testing different ways of investing your cash, you might just strike gold. 

We hope you enjoyed this post on investing for beginners and learned how you can start investing. This is a guest post written by The All Round Investor. The All Round Investor is a site dedicated to improving the financial knowledge of it’s readers, through posting opinion pieces and information. While investments are often a good choice, The All Round Investor is not responsible for the financial decisions of its readers, and all decisions should be first discussed with your financial planner.

Their blog is designed with the intention of becoming a community through which people from different communities, backgrounds and lifestyles can go to understand the fundamental aspects of finance, improving their financial position.

Special thanks to The All Round Investor for writing this piece on investing for beginners and contributing to the financial education of our readers.

Related posts to investing for beginners:
12 Good Money Habits
What You Should Do Right After Pay Day
7 Personal Finance Books You Need To Read
20 Creative Ways To Save Money You Will Love

Enjoyed this post? Pin it for later! 🤗

how to invest investing investing for beginners micro investing stock market