If you are thinking of investing, then you are likely unsure of how to start and what you should be investing in. The world of investment can be very intimidating for the first-timer and even confusing for those who are experienced. The following are 5 rules that will help you get started.
Learn about investments
Once you have your finances in order, it is time to start learning about investing. Study basic terminology, so you know how to make coherent decisions. Learn about stocks, bonds, mutual funds, and certificates of deposits (CD’s). Don’t forget about other details that include diversification, portfolio optimization, and market efficiency.
Set investment goals
Before investing, you should know your purpose and the likely time in the future you may require the funds. Now it is time to decide what you want to get out of investing. Your ultimate goal is to make money, but everyone’s needs are different. Things to consider include income, capital appreciation, and the safety of capital. Also, consider your age, your circumstances, and your financial position
Diversify your investments
The popular way to manage risk is to diversify your exposure. Prudent investors own stocks of different companies in different industries, sometimes in different countries, with the expectation that a single bad event will not affect all of their holdings or will otherwise affect them to different degrees.
Imagine investing in five different companies, each of which you expect to continually grow profits. Unfortunately, circumstances change. At the end of the year, you might have two companies (A & B) that have performed well so their stocks are up 25% each. The stock of two other companies (C & D) in a different industry is up 10% each, while the fifth company’s (E) assets were liquidated to pay off a massive lawsuit. Diversification helps you recover from losses and still leaves you in a good position.
Control your emotions
The biggest obstacle to stock market profits is an inability to control one’s emotions and make logical decisions. In the short-term, the prices of companies reflect the combined emotions of the entire investment community. When a majority of investors are worried about a company, its stock price is likely to decline; when a majority feel positive about the company’s future, its stock price tends to rise, and remember, just because everybody is investing in a particular market doesn’t mean it’s the right one for you.
Have an emergency fund
Before you can begin investing, you need to look at how much money you have to invest. Be realistic about it. Make sure that you leave yourself with enough money to pay for your regular monthly bills, loan payments, etc. You don’t need a lot of money to get started with investing- but there are risks. You don’t want to leave yourself short of paying other important bills.
Finally, Investing is always a great opportunity to build large asset value for those who are willing to be consistent savers, make the necessary investment in time and energy to gain experience, appropriately manage their risk, and are patient, allowing the magic of compounding to work for them. The earlier you start investing, the greater the final results – just remember to walk before you begin to run.
You can read up on more tips on investments and all it entails here.
What additional tips can you suggest for successful investing? The comment section is all yours
Thank you for the post. Quite insightful.