Like many endeavours in life, the hardest part of investing is getting started.

I constantly have friends and family asking me how to get started with investing in stocks. Over the last two years as markets continued rising and retail investors piling in there was a FOMO induced increase in the frequency of these conversations. Here are a few of the resources I pass on to friends that want to start investing.

Understand why it’s important to invest

Understanding the importance of investing is essential when you are getting started. Although FOMO may prompt you to want to invest, it will not keep that fire ignited when you start to see losses in your portfolio which will inevitably happen at points during your investing journey.

I wrote about why it’s important to invest as early as possible in an article about lessons I learned working at a fund manager.

I realised why it was important to invest when I saw what would happen if I didn’t invest. I received this reality check when I looked at what my balance would be if I relied solely on my employer contributions to my superannuation for my retirement. You’re able to do this with this MoneySmart calculator. When I first used this calculator, it revealed that I was only going to be self-funded for three years in retirement. After that, I would have to supplement my super with the aged pension.

It is important to me to be as financially independent as possible. This prompted me to prioritise investing and create a regular investing habit that I maintain to this day.

Investing preserves and grows your wealth

The largest hesitation that my friends have is the risk that is involved in the stock market. They’d rather leave their hard-earned savings in an account that won’t fluctuate in value which they equate as risk free. We are now all hyper-aware of inflation and know this is not true. Leaving your funds in your bank account means a decline in purchasing power every single day. Inflation sits at 6.1% - the highest rate since 1990. How does this compare to your interest rate?

A convincing graph that drove me to move my money from my savings account to my trading account is attributed to Shane Oliver from AMP Capital. He put together an article titled ‘Five great charts on investing’. The first graph showed shares versus bonds versus cash over the very long-term. None of us are going to have a 120-year time horizon like in the graph, but it shows that over the long-term, the market has rewarded investors for the risk they have taken.

Set yourself up for success

On the other end of the spectrum to risk adverse people hording savings are investors itching to get into the market. These investors want to rush into buying to reap the rewards that their mates are enjoying. The first question is normally ‘what stocks should I invest in?’ when it should be ‘am I ready to start investing?’.

One of the key tenets of successful investing is ensuring you have strong foundations. The last thing that you want is to get in a situation where you have to sell shares at an inopportune time because you have unexpected expenses, or earning less on your investments than you’re paying in interest on debt.

There are a few considerations, including the ones we touched on above like ensuring that you have no ‘bad’ debts like personal loans or credit cards, and having an emergency fund.

For a comprehensive outline of what to do before you start investing, listen to our Investing Compass episode.

Part of being ready to invest also involves understanding your cashflow and net income after expenses – do you have lumpy pay at irregular intervals, or consistent pay cheques? How much can you afford to set aside to invest? To answer these questions, you must understand your budget.

A few resources that can help you include:

Construct a portfolio based around you

Don’t invest for the sake of investing. We invest so that we can reach a goal, and investments are the vehicle for this and nothing more. A lot of people get enjoyment out of investing, but regardless of this you need to acknowledge that for many of us, investing is our pathway to financial independence, self-sufficiency and reaching a goals. This means that you shouldn’t start with the stock or ETF - you should start with yourself.

Always start with what you are trying to achieve. Then, base your investments on how much risk you need to take on andwhich assets allocation will achieve your required return. It is only then that we look to investments.

Normally, investors start the other way around. These conversations happen all the time – you go to a barbeque and someone says that BHP is the next hot tip. So you go and invest in BHP, it goes down 20% the next day, and you have no idea why. You have no idea what the merits of the company are, or how it connects to what you’re trying to achieve. You also might have taken on risk that might’ve been unnecessary for your goal. For example, if you’re saving for a house deposit and you’re looking to purchase in 12 months you are already further from your goal without a lot of time to recover. It’s important to always think about yourself and what you are trying to achieve before you start investing. It gives you a north star that will guide you through long time horizons, help reducing poor investor behaviour and inform the investments you need to acquire.

We have multiple free resources that help you construct a portfolio around your financial goals.