People just starting out on the way to building up their investments are often at a loss about where to begin. What should one start out with? What general strategies should one employ? Should one hire brokers or do everything on one’s own? These are just a few questions new investors ask themselves.
The truth is, investment is more of an art than a craft, and there are hardly any rules that are set in stone and are correct in 100 percent of cases. However, there are some principles that a novice investor would do well to follow until he gets some experience under his belt, while investors that are more professional can often afford to ignore some of the rules or even invent their own ones.
#1. Start Now
If you contemplate starting an investment portfolio and have some spare cash to do so, do so right now. There is no ideal time to start investing except yesterday – which means that waiting for a more opportune economic situation is always useless. If you have money you can invest, don’t wait – it will help you to start out on the way to building up real wealth, and will make making new investments easier as the time goes by.
#2. Try International Investments
Offshore investment may sound scary, but it is nothing of the kind. You may easily control your portfolio on your own, hire a specialist to do so or go a middle way and contact one of the companies providing valuable advice on how to do so without actually doing the work for you. This way investing internationally turns into an extremely fascinating, lucrative and interesting pastime that will probably grow to occupy a larger portion of your life in the future, as you gain more expertise in the matter.
#3. Diversify to Alleviate Risks
Some professional investors may be able to afford to concentrate their assets in a few areas to maximize profits. However, even they sometimes get into trouble as a result (because high profits and high risks always go hand in hand, it is just how life is), and if you read this article, it is certainly too early for you to contemplate such an approach. Therefore, make sure you never keep all your eggs in one basket, hedge your bets, so to say. This way you will never lose too much to endanger your financial position, even if worse comes to worse.
#4. Don’t Panic
Whatever you choose to invest in, one of the most important rules is never to move along with the masses. It is a good bit of advice for life in general, and it is doubly so in case of investment. It may be almost impossible not to submit to the sinking feeling of dread and panic when you see that stock you’ve sunk so much into is dropping as people are trying to get it off their hands, and you will feel an itch to do so as well before it is too late.
But remember – it is herd instinct talking, not your rational thinking. There are always better times to leave the table than when everybody else is doing it. If the price is dropping, it probably means that you’ve already missed the ideal moment – but it also means that a better time is probably in the future.
#5. Financial Media Can Largely Be Ignored
If you intend to be rational about the way you invest, don’t listen to financial media. Of course, you should keep informed about what happens in the world of finance, as a matter of course, just don’t make it the basis for making big decisions. Understand one thing – much of what you read in financial media appeared there exactly with an intention to manipulate people like you into following certain behavior patterns, often quite expensive ones. Even if you’ve heard something and it turned out to be true, don’t be in a hurry to jump on the bandwagon.
You have to realize that before news gets into the media it becomes known to hundreds of bigger players, and before you’ve read that news article, thousands if not millions other people have read the same piece of news – which means that it has already lost its value as fresh, out-of-the-oven information.
#6. Determine Your Risk Tolerance before You Start
Before you become an expert investor (if you ever do), you will be a beginner, and beginners almost invariably approach their first investments with a great deal of emotion. That is why it is so important to define how much risk you can tolerate from the outset. As we all know, high risk yields potentially high rewards – but only if you are capable of following through with it. If you are easily spooked and can be forced to back out of a decision by circumstances, stick to more stable, less risky endeavors. It by no means signifies that you are by definition not fit to be an investor – you are simply more suited for less fluctuating areas of the industry.
#7. Be Ready for Disappointments
Especially if you choose to deal with high-risk investments after all. Many new investors are too optimistic about their prospects (pessimists usually avoid investing altogether, being afraid to lose their money), and losing their money comes as a nasty shock to them. Be ready to lose some or all of what you’ve invested. This way you will be able to plan better and won’t feel so dumbfounded if you ever really lose everything.
Investing is a tricky business coming in many forms. Some are more than satisfied with putting a fraction of their income into something low-yield and completely safe, somebody will try the stock market, somebody will study everything on one’s own, still others will hire specialists. Whichever way you choose, follow these principles – and it will do wonders to keeping you from making bad decisions, retaining your peace of mind and, if everything goes right, ensuring your and your family’s financial stability.
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