As I mentioned in an earlier post, I want to share my experiences of investing so far and explain how I came to start investing. I started investing officially at the beginning of November this year but it took me about 2 years of steady reading to get my head around the idea. The information I want to share with you below is not meant as financial advice but rather as a taster of how I came to invest.

After reading books on investing and personal finance blogs I came to the conclusion that like any other type of savings you need to start with a goal. So, why am I investing? What am I investing for?

Why am I investing?

Currently my investment is one of two things. I already have a savings account which is targeted at raising enough money for a deposit on a house. Even though this is usually enough for most people I’ve decided that since I don’t plan to buy a house for at 8 years, I have enough time to invest some money towards this goal also. On the other hand this investment is also flexible enough to provide me with an income at retirement. Even though I don’t have a fixed goal I know that my money is invested towards at least long-term goal.

When do I need the money?

I’ve rolled two points into one. I focused on my goal and most importantly I’ve mentioned the time-frame for my goal. As a rule of thumb you should only invest money that you do not need to touch for at least 5 years. 10 years is even better. Thinking about your time-frame is essential to reducing the risk or rather allowing your investment to grow. Most are aware that investing for less than a year is a guaranteed way to lose your money. My current plan is to take the money out after 8 years at the earliest.

How risky do I want to be?

If I’ve been reading about investing for 2 years why did I only start in November this year? Mainly I wanted to ensure I had a salary. It felt too risky to invest as a student. I also only started once I had enough in my emergency fund to feel comfortable enough to take a bit more risk with my money.

Talking of risk this is another fundamental part of investing. Your risk profile dictates your investment strategy as much as your time-frame does. Simply put if you’re not willing or cannot afford to lose money then you shouldn’t invest now. On a similar note you should only invest money that you can afford to lose which is why (as I mentioned above) it’s good to make sure you’re on a firm financial grounding before you start investing.

With these points considered I took the plunge. What did I invest in? My portfolio is made up of four Vanguard index funds. Three are stock market index funds and one is a global bond market index fund. Why didn’t I pick individual stocks? I’m not willing to attempt to time the market and for the moment I want to have a well-diversified portfolio.

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