The Motley Fool

Your quick 5-step guide for starting to invest in 2020

Image source: Getty Images.

One of the best resolutions anyone can possibly make for 2020, in my opinion, is to begin investing if they haven’t done so already.

Despite what some may think, it’s also easy to do. The five steps outlined below should be enough to get you on your way. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

1. Know yourself

Admittedly, this isn’t the most exciting step, but nor should it be. Before putting a penny of your money to work in the market, it’s vital to know your reasons for doing so. This can have a huge impact on what, exactly, you choose to invest in. 

The only ‘rule’ to abide by when setting goals is that they are sufficiently long term, such as saving for retirement, a child’s university fees or perhaps a house deposit. If you’ll need access to your money in less than, say, five years, you risk getting back less than you put in because market movements — over the short term — are unpredictable.

2. Get an ISA

Opening a Stocks and Shares ISA takes very little time but it’s a brilliant thing to do.

If you make an investment and that investment does well, you’ll pay capital gains tax on the profits you make. With an ISA, however, you can shield 100% of that profit from the taxman (along with any income you receive in the form of dividends).

This really matters. The more money you retain, the greater the effects of compounding over time, greatly increasing your chances of hitting the goals identified in Step 1.

3. Set up a direct debit

Having set up a tax-efficient account, your next job is to load it with cash. With an ISA, your total allowance is £20,000 for the current tax year. Don’t worry if you can’t find anywhere near this amount — simply deposit whatever you can afford.

You don’t need to invest everything in one go either. Indeed, a way of ensuring you’ll stick to investing (and don’t spend everything you earn) is to set up a direct debit with your bank that guarantees a fixed amount of your money is transferred over to your ISA every month. 

Investing on a regular basis also means you don’t put all your cash to work just before markets crash. 

4. Buy cheap funds

Here at the Fool UK, we like getting down and dirty with individual stocks. This, however, can be rather daunting for someone just starting out. Scrutinising companies also takes time and energy.  

That’s why I think new investors should initially concentrate on buying exchange-traded funds. This is a low-cost strategy that guarantees you to get the market return, rather than attempting to beat it. Warren Buffett — generally regarded as the best investor on the planet — thinks the vast majority of people should adopt this approach. 

5. Do nothing

The last step is arguably the most difficult of all. In an age of 24/7 news and Twitter rants, it can be easy to assume you should be doing something, anything, just to stay ahead.

Don’t be fooled. Counter-intuitive as it sounds, multiple studies have shown that the more inactive you are as an investor, the better your performance is likely to be. One reason among many for this is that costs are kept low.

Get comfortable doing nothing and you’re on the right road for stock market success.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.