HNE Staff Investing as a first-timer can be intimidating. You don’t know anything much about the market. You’re not confident if you can make sound investment decisions. It’s a good thing remembering these tips will help establish a solid foundation for newbie investors:
1. Consult An Expert
You’ve already acknowledged that you don’t know anything much about investing. Remedy that. Talk to experts with years of education and experience studying and working in the market.
It takes experience, knowledge, temperament, and interest to understand how the market works. You’ll need these to make rational financial decisions as well and avoid mistakes. A typical newbie error includes chasing after assets that recently made you money. So is selling financially sound stocks with minimal price drops during an economic crisis without waiting for them to recover.
Consulting a financial advisor will cost you money. However, it will be worth it if that expert knows when to sell an asset before it crashes and when to buy a stock before it breaks through. Your advisor can help you avoid irrational decisions that would be detrimental to your portfolio in the long run.
2. Make the Most Out of Compounding
The earlier you start investing, the better. It’s all thanks to compound interest, which is the interest you earn on interest over time.
If you start small at 18 and leave your money in the market until you’re 60, you’ll give it 42 years to grow and earn interest. But if you only start a decade later, you will only enjoy 32 years’ worth of interest from your account. Doing the latter would mean you’ll miss 10 years of potential returns.
3. Diversify Based on Your Unique Needs and Risk Tolerance
One of the most important rules in investing is not to put your funds in one place. It is a risky move, given how dynamic the stock market can be. Mix your investments to avoid significant losses. Combine assets that react differently under varied economic conditions.
Market conditions may cause one asset to increase in returns and another asset to perform poorly. If you invest in different assets, one asset category’s better returns will offset your losses in the other asset category.
4. Skepticism Helps
It helps to read and listen to the news and articles about supposed investment advice. Monitoring current events that might affect the stock market helps as well. But it is equally important to watch out for the ulterior motives behind what you watch and read.
Some TV and print media might only be after ratings boost and subscription. Turn to reliable financial advisors and educational resources for help instead. If things seem too good to be true, they might not be true at all.
5. Automate Your Investing Plan
Nothing beats having an expert human financial advisor, but new day traders can get more help from software. Some software applications even have mobile apps for monitoring on the go. Find secure programs you can entrust with your financial accounts’ details. Investors need to provide such to automate their investing and trading decisions.
6. Be Prepared to Lose Money
Understand that investment markets have cycles that include a recession which will cause you to lose money. Your portfolio’s value will decline over time, and it is a natural stage in your portfolio’s life cycle. Educate yourself on business cycles and the performance of stocks over several decades. Knowing what to expect will help you let the money work for you instead of fearing losing it and not getting it back.
7. Watch Out for Compounded Fees
When you invest, you will lose money not only due to price drops. You will also need to spend on management fees, annual fees, or activation fees. Understand how much you are going to pay to avoid a significant amount of compounded fees, too.
8. Protect Your Emergency Fund
Regardless of how solid you think your investment plan is, life sometimes doesn’t go as planned. Before something happens that will drain you financially, set up an emergency fund. Open a separate bank account and arrange an automatic online transfer to that account every week. It could be something small that will not ruin your budget but will add up well over time. Leave it to build up until an emergency happens. Like how you automate your trading moves, you can do the same for your savings account.
9. Stick to Your Investing Goals
You might feel overwhelmed with the information you get about the market movements, investing tips, commodities, dividends, inflation, gold price, and more. It’s easy to get lost in this information overload. This is what investing goals are for – to help you find your way towards your ultimate investing path. Study the long-term investing trends and macroeconomic environment and how these affect your goals instead of changing them constantly.
10. Change Your Investment Strategy As Your Life Changes
When you decide to invest, keep up with your investment goals. It does not mean refusing the change your portfolio needs. Change your strategy depending on your personal circumstances, risk tolerance levels, and timeframes. For instance, investors who are only a few years away from retirement might want to avoid risky investments to protect their capital.
Portfolios also need regular reassessment. Their risk profiles will likely change over time as the value of investment funds change, changing their weight in the portfolio. These changes will affect your portfolio’s overall profile, too, which has to be adjusted to fit your desired risk level.
If you don’t know a lot about investing, educate yourself about it. Make use of the tips mentioned here until you’ve mastered the art of investing, buying, and selling assets.
Want to be a better investor through the pandemic? Read tips on investing amid the pandemic to help you know how to manage your investment money during this extraordinary time.
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