Anyone can learn to invest. It’s not as complicated as many of us tend to imagine. If you want to build your wealth, it’s time to look your investment fears in the eyes.

When should you start investing?

If you have a well-paying, stable job and have set aside a decent amount of money, you’re probably starting to think about ways to build your wealth through investment. It’s not a bad plan. But there are a few things you should consider doing before you invest in anything beyond your savings account and your retirement fund.

#1 Calculate your net worth. This is a crucial step to take before engaging in any long-term investment plans. Your net worth is the total value of everything you own, less any debts - it’s your house, your car, other expensive valuables like jewellery, watches, digital equipment, the balances of your savings account or any investments you have. Then subtract all the debt you have accrued - credit cards, mortgages and loans, student loans, car leases, and so on. The total amount you get in the end is your net worth. Focusing your attention on increasing your net worth should be the first thing on your list. You can achieve that in different ways, including paying off your debts, improving your income, and, of course, investing.

#2 Figure out your big life goals. Why is that important? Because having a specific saving goal in mind will add a timeframe to your investments. This is crucial to be able to follow and evaluate the performance of your investments as well as assess how you’re doing against your personal targets.

Knowing when and why you need the money will also help you decide how much risk you can take. If you want to build your wealth and live off the returns when you retire, it means you’re in for the long-haul. It would make sense to take a few risks because you will have time to claw back any losses you may incur. However, if you’re saving for a house deposit or for going back to study and will need the money in a few years, you must calculate the potential returns and acceptable risks based on that period of time. It’s never a good idea to invest without a purpose!

What’s your excuse?

It’s true that the concept of investing can be a little overwhelming. Every time you set yourself a goal to get to the bottom of it, your mind races off in search of a new excuse why you shouldn’t or can’t do it. Let’s look at the most common excuses.

I don’t have the money. Yes, you do. Unless you’re really struggling to meet ends meet, you have the money. You might need to reallocate some of your spendings or cut unnecessary expenses, but with the investment threshold at €1 with Fast Invest, the excuse hardly holds up.

I don’t know how to do it. Investing is a skill - no one expects you to come in, beat the markets and walk away with a few millions in your bank account. Leave that to Hollywood heroes. Like any serious endeavour in life, it requires research and a bit of effort. With so many apps and products at hand today, all you need to do is spend a few days learning the basics and take it from there. At some point in life, you didn’t know how to ride a bicycle either.

It’s not the right time. You are not looking to make a quick profit on the back of a crashing market. What you need is a long-term investment strategy that can withstand a few bumps and dents if it comes to that. Gauging your risk appetite will direct your investment decisions, so don’t worry about the big stuff before you even take your first step. Time is never right; you have to make it work.

I don’t have what it takes. It’s beyond terrifying to think about losing your hard-earned cash, so it’s not surprising that your brain is doing everything it can to kill off this idea. What you must keep in mind, though, is that starting small will limit possible losses to pocket money. It’s not necessary to throw your life savings into the investment pot from day one. Put your coffee money to work for a few months to gain confidence in your abilities and in the system, and you’ll see that you have what it takes, plus some.   

Understand the different types of investments (and the ingrained risks)

At first, you only need to know the fundamentals: how much can you make and how big are the risks? Too much information will send your brain into a shock. Have a high-level overview of the most popular investment options to ensure you don’t miss out on excellent opportunities as well as to pick those investment vehicles that fit your risk profile (we’ll talk about this a little later). Here are a few ideas that you might want to explore.

Investing in P2P consumer loans. An equally attractive option to both soon-to-be investors and experienced pros. Investing in P2P loans gives investors the opportunity to earn particularly high profits. Investors at Fast Invest achieve 8% to 13% returns a year. Depending on how much you’ve invested, a part of the repayments goes to your account every month. You can choose to either reinvest the earned money or withdraw it. And the loans are issued for a set amount of time, which is typically 12 months but could be shorter.

There is no catch here. Your biggest risk is that a borrower defaults (that’s when they’re unable to repay the loan). However, you can mitigate this risk by spreading your money across many different loans, so that only a small amount (£25-£100) goes to each. In case of a default, you would only lose that small amount rather than the entire lump sum.

As your partner, we also have a few safety measures in action. First is our Default Guarantee, which ensures that if at any time a borrower is late on their scheduled loan payment, we will offset that payment, allowing you to continue earning interest. And if a payment instalment is overdue for 3 or more days, our Default Guarantee will settle the arrears. In addition, we also offer the BuyBack Guarantee, which means you can sell your loans back to us at any time and we’ll repurchase them in one day.

Investing in stocks. It’s probably the number one investment option that pops into everyone’s mind. Popularised by Hollywood movies and mind-boggling success stories, the stock market is a strong choice, but it comes with its own perils. Due to its volatility and constant price fluctuations, the stock market is an option to consider if you’re willing to commit to a 10+ years’ investment strategy. While the returns are pretty good and average at 7% a year, it is a long-haul game (in other words, decades). Maybe not the best way to kick off your investment journey, but certainly something to add to the mix once you’re slightly more sure of yourself and your plans.  

Steps to a successful start

Ready to get cracking? Here’s what you need to do.

#1 Review your budget. Knowing your net worth is the fastest way to determining the overall health of your finances. After budgeting for your essential expenses (rent, food, clothes, etc.), your priorities should be with paying off bad debt. Sometimes, if the interest rate on the debt is lower than potential returns on investment, it makes more sense to invest before paying it off. However, in general, you should only invest the funds that remain after all the expenses are deducted from your income.

#2 Assess your tolerance for risk. There are three main things that collectively make up your ‘risk appetite’. These are: your personal risk attitude, investment goals, including timeframe and need for returns, and your personal circumstances - how much money can you afford to lose? Delving deeper into each of the three things will allow you to create your own risk profile and make investment decisions based on that.

#3 Shape your portfolio. This cannot be repeated too often: diversity is good for your investment portfolio; don’t put all your eggs in one basket. When you know your budget and the level of risk you can handle, start picking out investment options that match your criteria. It’s okay to start from broad categories. For example, you might decide to invest in P2P loans and renewable energy first and then add stocks, or go with stocks first and later add bonds or commodities. Remember, your investment goals should impact your decisions - are you playing the long game or opting for a five-year plan?

#4 Pick your investment partners. Do your research and choose the most reputable partners, no matter what category you’re going with first. Also, make sure you understand all fees before engaging in any contracts or agreements.

#5 Put things on automatic. Wouldn’t it be great to have a “set it & forget it” type of investment strategy? You can do that with a savings account, if you automate the monthly top-up transfers via an app or your bank. You can also do it when investing in P2P loans - just define your criteria and let the smart Fast Invest tool do the rest for you. Outsourcing the hands-on investment tasks to investment funds could also free your hands.