Most of us think that investing is a tough job and learning it will give us a hard time. However, learning how to invest is extremely easy and does not entail that you have to be an active trader to be a successful investor. The worn out adage, the best time to invest was yesterday could be true but it is also equally important that you first know the basics of what you are getting your money into.
We have compiled simple tips that could help you kickstart your journey in investing. As a new or beginner investor, you can use these tips to guide you in making smart decisions that will impact your investment.
Learn the Basics First
Find a perfect time to learn more about investment, the stock market in general, and the individual securities that consist of the market. Your focus will be on the individual securities unless you are planning to purchase ETF or Exchange Traded Fund. Knowing the basics of investment will help you place your money in a more stable investment opportunity that has high returns. Also, it will prevent you from making bad decisions that instead of earning you end up losing your hard earned money.
Set Your Long-Term Goals
It is important that you know your purpose and the most likely time that you are going to need your funds before you start investing. If you are planning to use your investment in a span of just a few years, then do not engage in the stock market and consider other options. The stock market is very volatile and does not offer any certainty that all your money will be intact by the time that you need it.
By determining the amount of capital that you will need and the time frame that you will need the money, you can compute how much you should invest and identify the kind of investment that you will need to meet your condition.
Know Your Investment Risk Tolerance
Risk tolerance is a genetically-based psychological trait influenced in a positive way by wealth, education, and income. It is how you feel towards risk as well as the level of anxiety whenever the risk is present. We all have risk tolerance and our level varies, which means there is no right balance.
In investing perception is crucial. If you understand your risk tolerance level, you can avoid investments that will make you feel anxious all the time.
Subdue Your Emotions To Make Logical Decisions
The biggest obstacles to achieving massive investment returns are the investor’s inability to control his emotions. An investor who feels negative towards the market is called Bear and its counterpart is called Bull. Stock market movements going against our judgment creates anxiety, insecurity, and tension. This triggers some emotional investors to make unsound decisions. Instead of trusting your emotions, it is best if you analyze the situation first. Seasoned American investor Christopher Sarofim might have mastered controlling his emotions when investing and when there is negative movement in his investments.
Don’t Put All Your Eggs in One Basket
Warren Buffet, the seasoned investor guru, is practicing diversification of stocks. But, he does it in faith that he has made all the necessary research to instinctively weigh in the risk involved. Most investors try to manage their risk by diversifying their exposures. Smart and successful investors own stocks of various companies from various countries with the idea that a single negative movement in the market will not have an impact in all of their holdings.