8 Smart Investment Tips for Beginners
Investing in your future is an important skill that everyone should take the time to learn. Many people believe they need a large amount of money to get started investing, but that simply isn’t true. In fact, the sooner you initiate your investment plan, the more likely you are to be successful.
However, dealing with investments can be quite tricky which makes doing your research important. It’s important to educate yourself so you can avoid falling into common beginner traps.
If you want to get your investment portfolio started, you should remember these 8 smart investment tips for beginners:
Investment Tip #1: Increase Your Overall Knowledge Of Investing
Learning is one of the best things you can do to improve your chances of success in investing. Unfortunately, most people ignore this step. It’s important to get familiar with journals, reports, books, podcasts, and videos that deal with investing. Learning basic investment terms can help reduce your learning curve and prevent you from making avoidable mistakes. No one is born an expert in investing, so it’s well worth it to take to learn vicariously through the experiences of others.
Investment Tip #2: Invest In Companies You Understand
While this may seem obvious, solely investing in company’s you understand is a step that most new investors miss. It’s natural to get lured in by a fad that seems like it’s going to be around for years. If you know the industry and are familiar with similar companies; you’ll be less likely to get trapped in a bubble. Gaining an in-depth understanding of the companies you invest in will also help you stay calm when prices fall which gives you the chance to buy low when everyone else is panic selling.
Investment Tip #3: Having Cash On Hand Is Useful
Many people in the investment community will automatically dismiss cash as useless, but that simply isn’t the case. Having cash on hand allows you to take advantage of market downturns. You can use the extra cash to keep your positions flexible and avoid having your assets all tied up during a market correction. Having cash on hand can help reduce your portfolio’s vulnerability to economic downturns.
Investment Tip #4: Start As Early As Possible
The more money you have invested, the more potential your portfolio has for growth. Part of starting early is practicing patience. Finding a long term investment strategy you can stick with will help you build a solid portfolio for your future. Patient investors who are educated and willing to stick to a strategy often see the best returns on their investment. Simple things like contributing to an IRA or 401k plan are easy ways you can get started investing in your future.
Investment Tip #5: Get Rid Of Your Debts
If you’re ready to take investing seriously, start by calculating how much it’s costing you to carry your current debts. Being tied down with high-interest credit cards or loans takes away from the money you can invest. Keep in mind you can’t predict or guarantee a return on your investments which makes dealing with debt a more pressing requirement. You don’t want to be heading into your retirement phase with loads of debt over your head.
Investment Tip #6: Take Advantage Of Retirement Plans
Taking advantage of retirement plans is a great way to invest in the future. If your employer offers a 401k plan, then it’s well worth your money to start regular contributions. Even if your employer only matches up to 3%, it’s still free money you can use to secure your future. There are also many other retirement vehicles that are tax-free which puts fewer restrictions on how much you can contribute.
Investment Tip #7: Learn How To Look At Investments Objectionably
Sharpening your critical thinking thinks is a must for any serious investor. Making investments based on emotion is guaranteed to set you up for trouble. People that invest based on emotion often end up with large positions in companies that operate in industries they don’t understand.
Looking at investments objectionably and avoiding the fear of missing out gives you the best chance of investing in assets while they’re still undervalued. Many emotional investors buy near the top in the hopes of not missing out only to lose their money in what should have been an expected price adjustment.
Investment Tip #8: Diversify Your Investments
Diversification is a great way to avoid having your portfolio rely on 1 or 2 investments. Being too dependent on a particular stock or investment almost never ends well. Nothing is a “sure thing” which makes it important to have your money spread around in different companies.
Diversifying across asset classes is also a good idea to help add some variety to your portfolios. If you have a high-risk stock, you should balance it out with a more secured investment like the GIC. Being diversified doesn’t guarantee a profit, but it prevents you from falling victim to one company that has a bad quarter.