If you are new to the investment world, then probably you are unaware of most of the rules and aspects of investing like, how to start, where to invest, how much to invest etc.
It’s a very confusing place for the first-timers, in fact, it is even for some experienced people. But once you get the hold of rules and aspects of investing, it becomes a fairly exciting and excellent place for wealth creation.
Here are 10 Investment Tips for Beginners, to get started in the market.
Tip#1 Set Investment Goals
Before starting your investment journey, you should be clear in your mind about what you want to get out of investing. Whether you want just capital appreciation, or want to invest for meeting any long term obligations, like retirement or child’s education & marriage etc.
Setting an objective or goals helps you to invest accordingly and get the most out of your investments. Investments which are done without any plan usually fails to give you the desired results.
Tip#2 Know Your Risk Profile
While investing, you should know your risk tolerance level, meaning, how much you are going to risk your capital, given unfavourable circumstances in the market. Every person has a risk tolerance level that is affected by factors like age, income, wealth and education.
Risk tolerance is also affected by one’s perception of investing in marketable securities. Like as you gain more knowledge about investing and different securities, then it becomes a less risky affair for you. Likewise, a person with no knowledge will always regard investing as a risky affair.
Investing as per your risk tolerance level, helps you to be less anxious with your investments and prevents from bad investment decisions.
Tip#3 Study the Basics of Investing
Before starting your investment journey, you should learn about the market, how does it function, how prices move, what factors affect the market etc.
Before making your first investment, you should know different investment options available, different financial metrics, steps to carry out fundamental analysis and review, etc.
Also, you need to keep yourself aware of this ever-changing market conditions, so as to keep your investments aligned to investment goal. Both knowledge and risk tolerance are interlinked and go hand on hand.
Tip#4 Learn to Control Your Emotions
One of the hard-hitting mistakes in the investment world is falling in love with your investments/stocks. It’s a very dangerous phenomenon, as it can dive you to deeper loses.
Continuing to hold stocks or investments in falling conditions in hopes of turning around, will only exaggerate the portfolio loses. You have to make decisions based on facts, logic and reasoning.
You should know when to exit your investments, even when your investment is yielding a profit.
Investing in marketable securities is a different ball game compared to investing in traditional investment plans by the government.
In investing, you need to diversify your exposure to different asset class/sector to manage risks. In diversifying your investment exposure, if one sector/asset class underperforms, then your other investments will help to keep the growth.
Tip#6 Don’t Leverage
For any beginner in the market, using the leverage option can kill your investment value. Leverage is when you borrow funds to buy stocks, in order to profit through the short term investing.
Stock-brokers provide you with margin, through which you can short term/intraday positions against the value of your current portfolio.
Leverage is attractive when the stock prices are moving as per your analysis, but if it doesn’t, then you will end up losing a good amount of money.
Tip#7 Make Investments Automatic
Make all your investments automatic especially when you are investing through mutual funds. This way, you will prevent stalling and continue smoothly with investments and experience greater growth.
This also instils the habit of disciplined investing and helps to control your emotions which in turn helps in the long run in building wealth.
Tip#8 Invest in Businesses You Understand
Never try to follow the crowd, and get trapped into investing in businesses you don’t understand. Always, invest in businesses you understand and try to develop your investment niche around it. Start by investing small, until you gain confidence in investing a big sum of money.
Even, Warren Buffet invests in businesses which makes sense to him and he fully understands the business model, market and its customers.
Same way, if you want to invest in something new, start doing research and understand the asset class or sector, and begin with small investments.
Tip#9 Learn to Spot Red Flags in Investments
Looking for red-flags in investments is as important as making the few right steps to succeed in the investment world.
Early spotting of red-flags in investment can save you a fortune, and ordeal you have to go through if invested. Before investing, analyse thoroughly and connect the dots, with risk to return metrics and estimated returns.
Following are a few common red-flags that every investor should look for and avoid.
- If the investment scheme sounds too good to be true
- High abnormal returns
- Lack of paper trail or financial history, to back the estimated return claims
- Offer from a complete stranger and excessive buying pressure
Tip#10 Study Your Portfolio and Investment Strategy
In investing, you have to constantly evolve yourself according to the market, and finetune your strategies. No single investing strategy will work forever and needs a constant upgrade.
Reviewing your investment portfolio regularly and studying different investment strategies, will help you to finetune your decision-making process, and stay in the top of the game.
Investing is not an easy cup of tea and required knowledge, patience, strong instinct and risk-taking abilities. Following these 10 investment tips for beginners will help you to perform significantly better.