Money Mentor: your guide to building better financial security

Question: I’d like some advice about how to make investments. I’m in my 20s and have been working a permanent full-time job for a couple of years now. At the end of each month, I have some spare cash leftover that I would like to put to good use. However, I’m overwhelmed by the jargon and risks involved in investing.

Can you advice me how to get started? How can I invest this surplus wisely without risking too much, and what are the best first steps for someone with no investing experience?

Answer: Investing can seem like a minefield of jargon and risk, but the good news is that you don’t need a finance degree to start. With a steady income and some spare cash each month, you’re in an ideal position to lay a solid foundation for your financial future.

Here’s how you can approach this in a simple and structured way.

Before you start investing, take a step back and think about what you’re aiming for. Are you saving for something specific, like a house deposit, or are you focused on building wealth for the long term, like retirement?

Knowing your goals will guide your decisions. If your timeline is shorter (eg, less than five years), investments with lower risk, such as savings accounts or government bonds, might be more suitable. For longer-term goals, you can afford to take on more risk for potentially higher returns.

Where to start

Emergency fund: Before committing to investments, make sure you have an emergency fund in place. Aim to save at least three to six months’ worth of essential living expenses. This acts as a financial safety net and ensures you’re not forced to sell investments at a bad time if an unexpected expense arises.

Educate yourself: You don’t need to master every investing term to get started, but understanding a few basics will help.

Here are some key terms to know.

Stocks (shares): These represent ownership in a company. Stocks can provide higher returns, but come with more risk.

Bonds: These are loans to companies or governments. They are generally lower-risk than stocks but offer lower returns.

Multi-Asset Funds/ETFs: These pool money from many investors to buy a mix of stocks, bonds, or other assets. They are a good way to diversify your investments.

Diversification: Spreading your money across different types of investments to reduce risk.

As a beginner, consider starting with diversified funds, such as multi-asset funds. These are professionally managed and offer a mix of different investments to reduce risk.

They are a simple and effective way to begin investing without having to select individual stocks or bonds yourself.

Regular contributions: A great way to build your portfolio steadily is to invest a fixed amount regularly, such as monthly. This strategy is called dollar-cost averaging and it helps you avoid trying to time the market – an almost impossible task, even for professionals.

It also ensures that you’re consistently building your investments without needing to make lump-sum decisions.

Risk is an inherent part of investing, but there are ways to manage it.

Diversify: Spread your investments across different assets, industries, and regions.

Risk tolerance: Consider how comfortable you are with market ups and downs. If you’re nervous about seeing your investments lose value temporarily, you may prefer a more conservative portfolio.

Time: The longer your timeline, the more risk you can typically afford to take, as you’ll have more time to ride out market fluctuations.

If you feel uncertain, consider speaking with a financial adviser. They can help you craft a plan tailored to your needs and goals. A good adviser will take the time to understand your circumstances and explain your options clearly so you can make informed decisions.

The hardest part of investing is often just getting started. Begin with small, manageable steps, and build confidence over time.

Martin Glennon is head of financial planning at ifac which is the professional services firm for farming, food and agribusiness