Everyone loves the idea of quitting their 9-5 jobs to become an investor. While this is a very great idea, and the ultimate goal for most people, it has to be done the right way to be successful.
Like any other game, the investment world has rules that must be learned before diving in. Understanding essential investment tips before getting started can save you so much heartache.
Here are ten investment tips that will help you when becoming an investor.
1. Access Your Current Financial Situation
Many people decide on becoming an investor simply because they feel it’s the only option left. This can lead to a very frustrating path. Before you invest in anything like stocks, ensure you are debt-free (especially credit card debt) or at least working towards it.
It’s also important to have an emergency fund set aside. Experts used to advise new investors to save at least six months worth of all your expenses. But with higher costs of living, sometimes it’s best to save an amount equivalent worth your nine months expenses. If you have a family, consider saving more.
2. Know When to Move Your Money
American Economist, Gene Fama’s, son once said that money is like soap, the more you handle it, the faster you finish it. This makes a lot of sense when you think about the fact that money transfer comes with costs and tax consequences.
Even worse, most of the time, you’re moving money at the wrong time. The average investor underperforms the market as a result of poor timing and ends up earning 50% of what they could have made.
To perform better than the average investor, know when to move your money. Plan for it. Don’t always do it in a rush.
3. Understand Dollar-Cost Averaging
This is a strategy used to reduce the level of your risk. It automatically invests money at different intervals based on the market condition. It forces you to buy less when the market prices are up and buy more when the market is down.
Successful savers automate their savings and leave them running for years. If you’re working your way up to be a smart saver, it’s time to study and understand dollar-cost averaging.
4. Don’t Bite What You Can’t Chew
Just because someone else is making a living from participating in the markets a certain way doesn’t mean that’s the route for you. If you don’t understand stocks and mutual funds, even if you build stocks on guaranteed safe investments, you could be headed in the wrong direction.
It’s best to stay clear of it until you learn and understand the dynamics of the investments. Start with learning the lingo first. Know the difference between a mutual fund and ETF, the purpose of the index, and what risk means. Stay up-to-date on new programs and incentives, such as qualified opportunity zones, so you can know your options.
It’s important to test until you find the strategy that’s right for you. Comparing yourself to others could cause you to take on more than you can handling when you’re first trying to become an investor.
5. Watch Market Fluctuations
Investments are not a short term deal to get you the next ticket for your vacation- they’re long term. In most cases, it’s a way to boost your retirement funds.
It’s, therefore, best to avoid trading based on marketing fluctuations. In the short term, the market is driven, by what’s causing excitement (everyone appreciates something new). The other thing that dictates the market state in the short term is fear, for instance, fear that a scandal may adversely affect a company’s reputation.
The bottom line is, the stock value of a company is determined by its earnings. A company with a good foundation should get past a few setbacks and criticisms. Pay attention to company behaviors and changes to help guide your decisions.
6. There is No Right or Wrong
The stock market can be a classic turtle and hare tale. They are both unique in their ways, and they all get to their destination. Only the timing is different.
Your colleague may double his money in a blink of an eye after buying Apple stock at the right time. Was he just lucky, or is he really smart? Similarly, a smart trader who makes slow and longer investments eventually get returns at a slower pace and finally gets to his destination.
Make a choice of what type of investor you want to become and stay the course.
7. Know What You Own
A stock and a stock index fund are two different things. A bond fund is different from a stock fund.
Some investors who own large-cap equity mutual funds have an irrational fear thinking they’ll lose everything. There are different levels of investments where either everything you have or nothing you have is at risk.
Keep up with the different types of investments you’ve made and understand how they operate.
8. Invest in Yourself
The internet is an excellent place to learn how to become an investor. Sometimes there are too many resources to a point where it can be overwhelming.
In this case, find a mentor who’s methods you like and see do they offer or recommend any books. Try and mix both books and internet knowledge.
Start small and work your way up. All great investors began by learning.
9. Watch Your Shopping Habits
The way you shop for a dress or suit is similar to how you can shop for stocks. Sometimes you’ll wait around for the perfect sale based on that companies sale patterns in the past.
This is the same case with stocks. Being a smarter investor includes knowing when things are on sale and buy low.
10. Remember No One Knows Your Condition
Keep in mind that people giving you advice online don’t know you at a personal level. We are just giving advice that can serve a broad audience. Be able to pick out what is applicable to you.
Only you and your financial advisor (if you have one) can decide what’s best for you. Becoming an investor means making important decisions off your own discernment.
You Can Start Becoming an Investor Today
Deciding on becoming an investor to generate more income is a great financial move. It can help you top up your retirement funds and is an overall good extra stream of income.
Begin by learning how to go about an investment before diving headfirst. If you still find it too much to put together, ask for help from a financial advisor.
For more tips and advice, check out the career section of our blog.
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