How To Start Investing - Developer Edition

Having money in the bank that is just giving you zero profit and killing your capital instead of making more money is not going to help you achieve your financial goals.

Many economies nowadays suffer from inflation and currency devaluation (especially for developing countries). To beat those, you need to create additional value on your money through investment.

If you don’t have time to read multiple books, articles, and other boring docs nor the capacity to make sense of those, let me simplify things for you.

Here are some simple suggestions on how you can start investing efficiently and step by step to become better at that:

🧓 Invest in an individual retirement account

You won’t be getting a paycheck from your employer in retirement. No income. None. That’s obvious. You are going to have to rely on other income sources at that time.

"The question isn’t at what age I want to retire, it’s at what income."—George Foreman

Traditionally, an individual retirement account is a long-term passive investment, usually for 15-40 years, with post-tax paid earnings—you will pay taxes only when you decide to stop contributing and cash out your money.

Depending on the country, there are different types, rules, and names for the “individual retirement account” program. To get more information about such an investment opportunity, you should contact the bank or financial consultant in the country you are a tax resident of.

The definition and investment model of an individual retirement account in the USA, you can read here.

📊 Invest in low-cost index funds

No matter what kind of investor you are, you should always think like an investor about the diversification of your assets in your investment portfolio.

For an investor-beginner, I recommend you to start thinking about long-term investment initially because long-term capital gains tax rates are significantly lower than short-term capital gains tax rates (depending on the country). In this case, you get to keep way more money in your securities.

Low-cost index funds and ETFs are the best options to go into that for at least the first 5–10k before venturing to other funds or individual stock picking.

An ETF is a basket of securities — stocks, bonds, commodities, or some combination of those that you can buy and sell through a broker. They combine the diversification benefits and are available at various risk levels. Moreover, your investment capital shouldn’t be a large one at the beginning. You can start at $25 per month.

Index funds are common among ETFs too. It’s a passive investment fund designed to track indexes like S&P 500, NYSE, NASDAQ, etc. and automatically investing in stocks on the index they are tracking.

To start investing in low index funds/ETFs, you have to open a brokerage account. My favorites are:

• Fidelity
• E*Trade
• Robinhood (100% free to join, plus offers extended market trading hours)
• Interactive Brokers
• Trade Republic (available only for German and Austrian tax residents).

A few example options, I have already invested in: US S&P 500 Index Fund consists of an index of 500 of the largest U.S. companies, NASDAQ 100, based on market capitalization; Vanguard ETFs, MSCI World, and more.

Admin fees for index funds shouldn’t be more than 0.05% to 0.3%. Because the fewer admin fees, the less they will eat your return from index funds investment.

Another nice thing about investing in index funds is that you can automatically set up your monthly/bimonthly/quarterly investments. It removes the pressure to decide when to make each investment and free you from the order fees for each investment contribution.

Most brokers offer this functionality. It consists of automatic investments to make it easier to stick to your investment plan.

🏦 Invest in fixed deposit and bonds

A fixed deposit is one of the most common ways to invest money with low-risk. Every bank offers a variety of services in fixed deposits that will lead to lucrative returns because they come with a fixed maturity period.

The maturity period can range from 15 days to five years. It can be considered for both short-term and long-term investments. So, if you want a safe investment, then fixed deposits are one of the best ways to invest money.

When you buy a bond, you are loaning a specific amount of money to its issuer for a determined time. In exchange, the issuer promises to make regular interest payments at an agreed rate until the bond comes due and then repay your initial investment - the principal:

For example, you buy a 5-year, $8000 bond paying 4% interest rate. The issuer, in exchange, will promise to pay the interest rate on that $8000 quarterly, and then return your $8000 after 5 years.

The advantage of putting bonds in your portfolio is that they are a relatively safe investment. Bond values don’t tend to fluctuate as much as stock prices, so they are less likely to keep you worried consistently.

💎 Invest in commodities and metals

The argument for investing in physical assets (like gold, oil, steel, etc.) is that resources are tangible and hold value.

During the recession in a bear (falling) stock market, the price of precious metals is usually growing. Gold often holds value when stocks fall:

“Gold remains an invaluable long-run inflation hedge that provides a strong foundation for any risk-intolerant portfolio. Allocating 5% to 15% of your portfolio to precious metals — with the majority in gold — could be one of the best defenses against an economic downturn and an uncertain geopolitical arena in 2020."—Young Entrepreneur Council (YEC)

When you invest in commodities like natural gas, corn, soy, and coffee beans, you are counting on supply and demand, which, in turn, drives the commodity price higher than what you paid for it.

Basically, you invest in futures. If the market price would be higher than your future contract, you will make money.

The most common way to invest in commodities for individual investors is around just $1,000, for example, via ETFs.

Here is the list of ETFs you can invest in precious metals and commodities.

🎓 Invest in yourself

Money doesn’t change people. It just gives them the freedom to become more of a person they already are.

At the beginning of your investment journey, the key is to focus on building assets and cash to invest in more assets.

The first step is to educate yourself about finances and find ways to free more money for investments.

If you want to learn how to free extra monthly cash from your dev-salary for investment, you can get my 15 tips on how to free extra cash for investment.

The second step is to use it to make yourself better:

• Invest time to research what you feel passionate about
  
• Invest money in courses to learn new skills
  
• Invest in reading books
  
• Invest in experience

• Invest money into automation to spend your time on more important things

Conclusion

Investing may seem scary, but it doesn’t have to be. The best way to begin investing is to start!

In theory, there is no difference between theory and practice. In practice there is.–Yogi Berra

Every investment option has its pros and cons. Some vehicles come with low risks, while others have a high level of risks. So, before investing in any financial product, understand it well in terms of risks and returns. Along with that, determine your risk tolerance, too. However, having a diversified portfolio of assets reduces the risks.

Do it as carefully and as thoughtfully as you can, decide on the investment type you want to invest in, consider starting with a small initial investment in a passively managed fund. Especially if you’re working toward a long-term goal like retirement, it’s important to stay confident, even during unprofitable years in the public market.

Disclaimer: Author’s opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by IlonaCodes constitutes an investment recommendation, nor should any data or content published by IlonaCodes be relied upon for any investment activities.

Previously published at https://ilonacodes.com/blog/top-5-best-ways-to-start-investing-for-developers