A beginners guide: Financial Independence

Most people dream of achieving financial independence but no idea where to start! Based off my personal experiences and research I’ve put together a guide which could help you get started or to refine your existing portfolio.

Define your Goals and Horizon?

Identifying your investment goals—such as retirement, buying property, or wealth growth—will shape your strategy and foundation. Your timeline is equally important, as it determines your risk tolerance for short, medium, or long-term investments.

Emergency Fund

Create a budget that accounts for an emergency fund. This safety net is essential for protecting your finances if the market doesn’t go as planned. Only invest in what you can afford to lose without stress.

Risk Appetite?

Your risk appetite influences the type of investments you choose. Younger investors, for example, may opt for a higher percentage of equities or illiquid investments, as they can typically afford to take on more risk.

Asset Classes

There are various asset classes, each with different risk levels:

1. Stocks – Corporate ownership with moderate to high risk.

2. Bonds – Low-risk debt to governments or corporations.

3. ETFs – Diverse mix of stocks/bonds, providing low-cost, low-risk diversification.

4. Mutual Funds – Actively managed with diversification, though often higher in cost.

5. REITs – Liquid real estate investments, affordable and accessible.

Consistency usually wins?

Regularly investing small amounts over a long period helps manage average costs through dollar-cost averaging, which smooths out investment costs over different market cycles.

Diversify, Diversify, Diversify?

Diversifying across asset classes or within each class lowers risk. General rule of thumb is uncorrelated assets add value by providing better protection against downturns.

Portfolio Monitoring?

Stay informed on economic events impacting your investments and develop financial knowledge. Periodically review and rebalance your portfolio as your goals or risk tolerance evolve.

Practice what I preach?

Initially, my decisions were influenced by emotions, but after some trial and error—and a few crypto losses—I’ve committed to long-term investing and the power of compounding. My current portfolio includes ETFs, individual growth stocks, and large-cap dividend stocks, with rebalancing only as necessary. Patience is essential on this journey, and thankfully, it has paid off with decent investment returns.