When it comes to investing, most people don’t know where to start. But as the great philosopher, Socrates, said “To know thyself is the beginning of wisdom.” Likewise, knowing yourself should be the first step in your investment journey. Next, you’ll need to know the investing basics, define your destination, then plan your investment journey accordingly. Only when you know yourself and understand the basics of investing can you realize your investment goals without taking too many risks. Simply put, successful investing is all about discipline. Do your homework well and you’ll be on your way to a robust and healthy financial future. Invest recklessly and you’ll be in for a rude awakening. If you’re new to the world of investing, fret not as we’re here to help you. We’ve put together this guide to bring you to speed on the things you should know before you embark on your investing journey. Let’s dive in!
1. Know Your Financial Self
You can only invest smartly if you know yourself better. In the world of investing, this would mean a lot of things, starting with knowing your financial self. You need to first understand your net worth to realize how much you can invest without compromising your life. Having a figure in mind helps set the stage for your investment journey. It can also help you set realistic investment goals and understand how risk-averse you are.
2. Understand the Nitty-gritty of Investing
Another important step before you start investing is to understand the different investment options available to you and how to interpret them. Different investment avenues are available to investors today. From stocks to bonds, real estate to gold, and commodities to cryptocurrencies—numerous investment options exist and are all unique in their own ways. It’s important you understand these investment options before you start investing. One way to learn about these instruments is to grab an investment book and give it a full readthrough. Alternatively, you could seek the help of a financial advisor.
3. Take Caution; It Pays to be Careful
You probably have heard of the famous professional day trader who invested in GameStop ($GME) stocks in the summer of 2019. After spending over $50,000 at $4 per share, the trader enjoyed a bullish position for the next one and half years and spread the news on Reddit and YouTube (check this article from AIS-CPA for the full story). Inspired by the GameStop phenomenon, many investors shorted the stocks only for the stock market game to change, causing some to lose big while others declared bankruptcy. Lesson: If an investment product looks too good to be true, it certainly is. It’s always good to be careful when investing. Erring on the side of caution can save you big down the line and ensure you achieve your investment goals, despite the market conditions.
4. Don’t Put All Your Financial Eggs in One Basket
Never put all your money in one stock. Always aim to diversify. Creating a diversified portfolio of stocks can help you mitigate risks and save you from losing money if a few stocks are underperforming. For example, you could have a diversified portfolio made of bonds and stocks that meet your risk tolerance. While there are a lot of opinions out there on how a diversified portfolio needs to be, many experts agree that putting all your financial eggs in one basket is a recipe for disaster.
5. Investing Is a Risky Endeavor
Little if anything is guaranteed, when it comes to investing. You could make money or lose it, so if your goal is to get rich quick, you might not want to try investing. Many people have lost millions through investing and it could happen to you too. In fact, stock market crashes are a major cause of suicide, according to new research. Stock market professionals advise that you shouldn’t invest the money you’ll need in the next five years because if the market crashes, you won’t have enough time to recoup the funds.
The Bottom Line
Investing is a journey, not a destination. By mastering these investing tips, you’ll be better equipped to invest in stocks that will achieve the right combination of income, safety, and growth all while minimizing the risks.