Getting into investing isn’t easy. In fact, many people who start investing find it overwhelming and intimidating. The good news is that it doesn’t have to be. By implementing the right tips, getting started with investing can be an exciting and profitable journey.
To make things easier for you, here are 10 tips for first-time investors.
1. Set a Goal
The first thing new investors should do is to make a plan. Most investors simply dive right in without having any real strategy in place. This can be a fast track to losing money. If you want to really be successful at investing, you need to come up with a plan.
One way to do this is to speak to a personal finance expert. He or she will be able to help you come up with an investment strategy that makes sense and helps you increase your earnings. You can also do research on your own.
2. Respect Your Risk Tolerance
One of the biggest mistakes that first-time investors make is not being aware of their risk tolerance. Risk tolerance is your own comfort level with volatility. Your risk tolerance also depends in part on your goal or strategy—i.e., whether an investment is short-term or long-term.
If you don’t assess the risk associated with a particular investment, you may be impatient or fearful when market conditions change unexpectedly. However, making investment decisions based on your emotional state can have serious financial consequences. If you know you are likely to panic if the market takes a turn for the worse, you may be more comfortable with a less risky investment product.
3. Diversify Your Portfolio
It is important to diversify your portfolio. That means investing in a healthy mix of volatile, risky investments and steady, secure investments. For example, you might want to invest a portion in stocks, which are carry more risk but have historically delivered higher returns, and another portion of money in bonds, which are generally considered relatively safe investments but have a low yield.
Diversification can help you reduce losses while maximize your profits. The percentage of each investment category in your portfolio will depend on how long the money will be invested. If it will be decades before you anticipate withdrawing money, you can afford to invest a greater percentage of your portfolio in “risky” investments like stocks, gradually reallocating as you approach the end of your investment window.
4. Get Ahead with Tax Planning
Many people start investing money without considering the tax implications associated with it. This is a huge mistake. In fact, you’re expected to pay taxes on the returns that you earn from investing. Before you get started with investing, it’s a good idea to check out what the tax laws are surrounding your investments. That way, you can properly tackle your finances during tax season.
5. Slow and Steady Wins the Race
Another thing to keep in mind when beginning your investment journey is that slow and steady wins the race. In other words, when you invest, you don’t have to invest huge lump sums. Instead, consider investing smaller chunks of cash on a regular basis. This will be a hedge against market volatility. This also means that the sooner you start investing, the better. There’s no time like the present!
6. Reinvest Your Income
When you get your income back, it’s easy to find things to spend it on. However, there’s a much better way for you to use your earnings. Instead of spending your investment income, consider reinvesting it into other stocks and bonds. Doing so can help you increase your investment earnings, particularly if you have a long investment window.
7. Do Not Review Your Portfolio too Frequently
Another big part of investing is to periodically review your investment portfolio. It’s important to look at your investments periodically and track how they’re going. If you need to make any changes, do it! By constantly reviewing your portfolio and reassessing the situation, you can adapt to current market conditions.
However, do not review your portfolio too frequently, particularly if you have a long investment window. Current market conditions are temporary and particularly if you have a low risk tolerance, checking your portfolio’s performance too often can result in panic selling.
8. Stick to Your Plan
It can be tempting to go rogue and change your original investment plan, particularly if market conditions are fluctuating. However, changing course abruptly is usually not a financially sound move. Over time, market corrections even out temporary vacillations.
Suppose your original investments are decreasing in value. Remember that long-term investing takes into consideration the fact that markets will fluctuate. Historically, over time, markets have increased in value.
Similarly, it may be tempting to invest in a product that is rapidly increasing in value. However, this carries the risk of “buying high,” and you can lose money if there is a correction.
9. Stay Calm
When you start investing for the first time, it can be a bit terrifying watching your stocks rise and fall. Many first-time investors see the volatility of their stocks and get spooked. Then, they withdraw their investment, locking in their losses before the price rises again.
When you invest, stay calm. Approach your investment portfolio with patience and a clear head. That way, you won’t don’t jump into any decisions that could be financially counterproductive.
10. Avoid Get Rich Quick Deals
In the world of investing, it’s not uncommon to come across investment opportunities that promise quick and substantial returns. A few of these popular alternative investments include the marijuana industry and cryptocurrency.
However, while these investments might have a lot of hype surrounding them, they are considered extremely risky investments because it is difficult to quantify the potential hazards. Carefully research any deal you are considering to ensure that you get the return on your investment that you are anticipating.