Investing for beginners: a 7-step guide

Whether financial security, independence, or the realization of life’s dreams, investments in the financial market help to achieve these goals. Read this blog for a beginner’s guide to investing. 

Entering the world of financial markets can be overwhelming. But investing money is not just for stock market gurus on Wall Street or at Paradeplatz. The following 7 steps show how even beginners without expert knowledge can successfully invest their money. 

If you would still like advice on your journey as an investor, we would be happy to assist you. Straightforward and with no obligation.  

Step 1: Gradually build up financial knowledge

“Investing money for beginners – get started without financial knowledge.” Many “experts” on the Internet make similar promises. But it’s not possible without some knowledge. However, you don’t need a degree in business to start investing. Instead, you will build up your financial knowledge on the path to becoming an investor.

Studying basic terms and principles is worthwhile for beginners. Because an informed decision is the best decision.

Step 2: Define your financial objectives and investment strategy

Whether you are a beginner or an experienced investor: Successful investing starts with your own goals. Focus on your personal wishes, dreams, and goals at the beginning. Imagine, for example: 

• taking early retirement at 55
• travelling around the world with the love of your life 
• watching your children grow up in your own home
• driving up a pass road in your dream car
• fulfilling your personal dream

Financial targets can be derived from this. These in turn form the basis for your personal investment strategy. When defining your investment strategy, you should consider the following questions: 

• Time horizon: By when do I want to reach my goal? How long do I want to invest my money?
• Risk/security: How much risk do I want to take? How well can I deal with potential losses?
• Availability: Is it possible that I will need the money again sooner? Do I need regular disbursements from my investments?
• Capital: How much money can I invest today? How much can I regularly invest?

Step 3: Understanding the magic triangle of investment 

An investment is always a compromise between three factors: 

• Liquidity: You can quickly access your own money. For example, you can quickly access money in your bank account. A property doesn’t usually sell overnight. 
• Security: Protection against potential asset losses. The money in your bank account is well protected against potential losses. There is a risk that it will depreciate due to inflation, or that a bank will go bankrupt. Equities, on the other hand, are also subject to market fluctuations. If there is a banking crisis, the price of a bank’s share can fall, even if the bank itself is doing well. 
• Return: Chances of a profit. Money under the mattress won’t yield a return. A share, on the other hand, offers the chance of a price gain as well as potential profit sharing (dividend).

The magic triangle of investment describes the balancing act between the three objectives:

• Highest possible chances of a return
• Lowest possible risk
• Availability of money as quickly as possible 

This is because there is no investment in which all three objectives can be achieved equally. As an investor, you must choose, for example:

• Reduced risk and increased availability. Here, you miss out on high chances of a return An example of this would be the money in a savings account. 
• Higher chance of a return with lower risk. Here, you give up being able to access your investment quickly. An example of this would be an investment in a property. 
• Higher chance of a return and higher availability. Here, you accept a higher risk. One example is investments in cryptocurrencies.

Step 4: Select the right asset classes

Gold, real estate, bonds, equities, funds: Investors can invest in a wide variety of asset categories. These categories are referred to as asset classes. The major asset classes are described in our investment tips blog. With each asset class, you make a different trade-off in the magic triangle of investment 

For beginners, funds or asset management that bundle various investments within and between asset classes are often worthwhile. This makes it easier to get started, as individual investments such as equities do not have to be traded. In addition, diversification takes place right from the start.

Step 5: Diversification: diversifying investments

Every guide to investing for beginners covers diversification. Diversification is an important term in the world of investment. Those who invest in a diversified manner can minimize risk and still generate profits.

Simply put, the idea is not to put all your eggs in one basket, but to spread your money across different investments within an asset class and between different classes. Because the diversification of a financial investment is extremely important, we have a blog article on the topic.

Step 6: Regularly review your strategy

Financial markets are constantly changing. And your life can change over the course of time. Your should therefore monitor and review your strategy regularly. If your life situation or goals change, your investment strategy should also reflect these changes. Regular reviews also help you identify opportunities and minimize risks. 

Online portals that show the performance of an investment make sense for monitoring investments. It is also worth discussing your investments and investment strategy regularly with an investment expert. 

Step 7: Patience and discipline as a recipe for success 

Successful investment requires patience and discipline. This is why you should invest regularly and over the long term:

Long-term nature: Overcome fluctuations and benefit from the compound interest effect

While it may be tempting to react to short-term market trends, a look back shows that long-term discipline usually leads to better results in practice.

What’s more, you can benefit from the compound interest effect over the long term. By compounding interest, your money grows even faster over the long term. This is done by reinvesting the annual interest on a financial investment. In the following year, the invested interest yields interest again – i.e. compound interest. We explain the compound interest effect in detail in the article “How to have a million in the bank when you turn 65 .” 

Regularity: Reduce emotional hurdles and benefit from an average cost effect.

Two typical questions keep many beginners from investing:

• Do I have enough money to invest?
• What if the prices fall again tomorrow?

Investors can overcome emotional hurdles by investing regularly – even smaller amounts. This way, they don’t have to constantly wonder whether it's the perfect time, or whether an investment is worthwhile at all.  

If you regularly invest a fixed amount, you benefit from the average cost effect (see info box) and your overall investment grows over time. 

Investing for beginners: Talk about it

The seven steps in this article are a good starting point for investing. By following them, you not only build up basic investment knowledge, but also get to grips with your personal goals and investment strategies. 

Finally, we can give you one last tip. Discuss your investment strategy regularly with an expert. This way, you benefit from many years of experience and receive professional support in finding the right investment solutions for you.