Got $5K and want to turn it into more? Here are 3 things to do, according to a financial adviser.

If you have $5k saved and are ready to start investing, it’s fair to say that things can feel... overwhelming.

There are several different methods of investing, each with its own pros and cons, and figuring out where to begin can seem like a big barrier to entry for many new investors. And you know what? That’s totally understandable!

Before you jump into it, it’s super-important to know your investment options and work out what is right for YOU. 

There is no one-size-fits-all when it comes to handling your money, so you want to make sure that your method of investing suits your lifestyle and personal risk tolerance, and will help you achieve your long-term investment goals.

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If you’re at a loss for what your options even are to begin with, fear not. 

There are three main areas we are going to discuss today and once you know the basics, it’ll then be up to you to choose HOW you want to start your investment journey.

Just to really hit the point home, there is no right or wrong. It all comes down to what works for your unique situation. 

Read on to arm yourself with the knowledge to make an informed decision, and you’ll be better equipped to begin your investing journey.

Three methods of investing to consider: 

1. Exchange traded funds (EFTS).

If you’re looking for a more passive approach to investing, then maybe an ETF is the way to go.

Instead of buying shares straight from a particular company, you’re instead adding money to a bucket that will buy shares on your behalf and the behalf of all other investors who have put their money in as well. 

Unlike with direct shares, you won’t personally own the share. You’re putting your confidence in whoever manages the ETF, trusting their expertise to make decisions on buying, selling, etc.

The big benefit to going this route is that you get instant diversification. 

Rather than putting all your eggs in one basket via direct shares, putting your money into an ETF lets you split your money between lots of different companies. 

If you’re looking for exposure to the share market and want a more hands-off approach, ETF’s could be an option worthy of your consideration.

• Pros: instant diversification, more hands-off.

• Cons: you don’t have complete control over individual shares. If the ETF manager decides to rebalance the portfolio, you may lose something.

2. Index EFTs.

If you’re looking for something that’s all-around low maintenance, an index EFT might be right for you.

These slow-and-steady funds are made up of a portfolio of shares or bonds designed to mimic the composition and performance of a financial market index. 

For example, if you choose a fund that mimics the ASX 200 Index Fund, it will track the average of those top 200 countries over time. 

Different index funds mirror different markets and industries, but no matter which one you choose, you can rest assured you’ll be hitting the average. After all, that’s the whole point of an index fund!

If you’re risk-averse and want something that you don’t have to think too much about, an index fund might be right for you.

• Pros: steady returns, instant diversification, more hands-off.

• Cons: average returns.

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3. Direct shares.

Another way to invest is to buy shares directly from a company to hold in your own name.

This gives you complete autonomy over your shares, which means that you personally own a small percentage of the company.

Because you’re directly investing, you won’t need to pay a fee to someone for investing, and any returns you make will 100 per cent go to you. 

There are still fees to invest directly depending on the platform you choose. It could be brokerage fees, or sell down fees or even a monthly fee for usage of that platform. Admittedly, fees are lower, because you don’t have someone else managing your money. 

However, directly investing in a company means that you take responsibility for your decisions. In this case, the onus is on you to do the proper research before throwing your money in.

When buying direct shares, It is KEY to analyse how a company is performing before putting your hard-earned money on the line. Before investing in any company, I recommend having a squiz at their annual report. Doing so will give you a solid understanding of the company’s cash flow, profit, and returns so that you can ensure you’re putting your money into something that will actually grow over time.

• Pros: you are the underlying asset owner and have the flexibility to construct a portfolio in exactly the way you’d like it to look.

• Cons: there is a lack of diversification if you’re only buying one or two shares and there’s the risk that you need to know what you’re doing when share picking – the responsibility is higher.

At the end of the day, choosing an asset class all comes down to what works for you. Before you decide which route to take, it’s essential to understand your current financial position, long-term goals, and risk tolerance. There is no magic formula, and choosing one approach doesn’t mean it’s the only one you’ll stick with forever. 

You might start with an ETF to familiarise yourself when the market, then invest in direct shares later – or vice-versa. Some people only ever invest in index funds and are perfectly happy with the steady returns they receive as a result. 

Arming yourself with the knowledge before you begin investing is one of the most essential and empowering aspects of shaping your future wealth. If you want to learn more, check out my new book below.

Investing with She’s on the Money by Victoria Devine is published by Penguin Random House Australia, RRP $32.99.

See Victoria Devine LIVE in Sydney, Melbourne and Brisbane. Tickets on sale here.

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