Investing 101: Six important things to remember
Imagine working an eight-to-five job for almost half of your life, only to realize that you haven’t saved enough to give you a decent life after you retire.
This might be the scariest thing that can happen to anyone. And it happens more often than you may think.
One of the common options for people to earn more is putting their money into an investment. Investing means making that money work for you by putting it into something that will give you a financial return.
Investing can be profitable, but you must keep in mind that investing won’t give you a guarantee of return. This is the first thing you need to know if you’re thinking of jumping into this realm.
Important things to keep in mind when investing
There are many things that you need to remember when investing. Some are very simple, but, most often, are ignored. As a new investor who wants to become successful in this field, you ought to consider following these six things.
1) Establish an emergency fund before investing
If you want to start investing, make sure to have an emergency fund. Having one is just as important as having an investment.
An emergency fund is different from your savings. It’s solely created for the intention of dealing with unexpected expenses. These can include unplanned hospital expenses, home repair expenses, and all other expenses that you don’t have a choice but to spend money on.
Others say that it’s a must to have an emergency fund before investing. The reason behind it is simple – when something unexpected happens and you don’t have an emergency fund, you’ll be forced to use your investment for it.
If you’ve invested in something that can’t be liquidated immediately, then you’re also in trouble. For example, if you invested your money in stocks and aren’t performing well, you might be forced to sell them as you don’t have an emergency fund to use instead. As a result, you’ll end up losing in your investment because you bought the stocks at a high price, but sold them at a lower cost.
On the other hand, when an emergency happens and you’re able to establish an emergency fund, you don’t need to liquidate any of your investments as you have funds allotted for emergency purposes.
2) Invest In yourself
How many times have you heard that the best investment there is, is to invest in yourself? Many attest to the benefits of this kind of investment.
By investing in yourself, it means that you keep yourself educated. This doesn’t mean that you need to attend school once again. It means to keep on learning things that will give you skills that you can use to earn more.
You can listen to podcasts, read books, or even enroll yourself in crash courses to help you gain the knowledge you need to increase your marketability. You can also watch financial and investing videos, like Show Me The Money, to find ways to make more money than what you’re currently earning.
Recently, some big tech companies announced that a college degree isn’t required for a potential candidate to work for them. All you need are the relevant skills needed to secure your spot. The surprising thing is that the skills they’re referring to are those that you can learn on the Internet. This all proves that learning more skills is the best investment you can give yourself.
3) Set your goals and objectives
Why do you need to invest? Where do you want to use the money? What are the things that you want to achieve? These are just some of the questions that you need to ask yourself before investing.
Investing without goals is like putting your money into nothing. It’s because your goals are going to be your motivation. Every time you’re losing the drive in investing, just think about the reasons why you’re doing it in the first place. This is particularly true when your investments are businesses.
4) It’s better to start small
Most people think that they need a huge capital to start investing. Depending on the type of investment that you want, this might be true. If what you want is to invest in a company and be one of its shareholders, then you need to have a lot of money for that.
But, investing isn’t just being a shareholder of a company. You can make small investments by buying stocks that don’t require a lot of capital. In this type of investment, it’s better to start small and risk losing that same amount of money, rather than starting big only to end up losing everything.
You’ll gain more experience in investing along the way. So, starting small and learning everything as early as you can is better, than starting big without having the right knowledge about investing.
5) Don’t put all of your funds in one basket
Diversify your investments. Don’t focus on a single investment. As long as you have the money to invest, just keep on looking for other investment opportunities. Having diverse investments will save you from losing everything in case your investment doesn’t work.
Others even advise that it’ll be best to invest in companies that belong to different industries. That way, when an industry faces a huge problem, only one part of your investment will be affected. The rest can still possibly cover your losses.
6) Only invest what you can afford to lose
This is an important rule that everyone who’s into investing should strictly follow. Investing is like gambling—no one knows whether the money you invested will grow or not. Putting all of your money in whatever kind of investment might get you into bankruptcy. When you enter investing, consider everything as a risk.
How to be a successful investor
Some people say that investing isn’t for everyone. But bear in my mind that engineers aren’t born engineers, same as doctors, leaders, and investors, too. To be a successful investor, you have to start with a good foundation, which includes the things covered above.
Remember to establish your emergency fund first, set your goals, start small, and keep on learning along the way. Diversifying your investment and investing what you can only afford to lose are also things you need to consider.
If you believe that investing can be a good option to include in your journey to financial freedom, why not go for it? Whether it reaps rewards or not, it could be a gamble worth taking.