Tips for making your first investment
Make your very first investment is an exciting time – but it can also be daunting. It can feel like they’re so much you need to know!
When you invest in a company, you may feel as though you can help an entrepreneur to further goals as you will be giving them the financial support they need. Or you can be part of a larger company whose mission you believe in.
Whatever your motivation to invest (aside, obviously, from boosting your savings), here are some tips to help you through your first investment.
Only invest what you are comfortable with
This may sound like a very easy step but it is a very important one. You need to remind yourself that you shouldn’t be biting off more than you can chew.
Investing should be done with your extra savings if possible and you should never spend the money you have month to month. If you do then you may find that you end up putting yourself in a sticky situation and this is the last thing that you need.
As a very standard rule, you need to remember that your total portfolio should not be more than 10% of your income or your net worth.
Anyone can invest
People tend to assume that you need to have a huge amount of money if you want to become an investor. But this is a very common misconception.
Not having a lot of money isn’t a good reason for you to not invest at all. It’s one of the top reasons why you should invest. It doesn’t matter how much capital you have because investing is one of the best things that you can do to try and boost the amount of capital you have.
There are so many platforms out there that give you the chance to invest with very small amounts, so you won’t have to worry about a thing there.
Do your research
When you think about making an investment, you may think that you need to invest in products or companies which you are passionate about, or have some expertise in. This is understandable and it may seem like a good start, but at the end of the day, if you like something, then this doesn’t always mean that it is the best investment.
If you want to become an investor, then you need to make sure that you dig deep and that you do your research as much as possible. You also need to make sure that you find out which companies are the best option and that you take into account your personal background too.
This can be an influential factor when it comes to your experience overall and it can also help you to make the most out of the markets you invest in.
Honesty is always the best policy
You have to be realistic and you also have to be honest with yourself too. You need to know what kind of investor you need to be. So think about it: are you wanting to be a long-term investor or are you wanting to see some quick returns?
How much are you willing to invest? You need to decide what your limits are too because only you can work out things like this. So many people choose to base what they can afford, on what their friends can afford. This is very wrong, and you may even find that you end up worse-off as a result.
If you want to help yourself here, then you need to try and diversify your portfolio while also making sure that you are not investing more than you should be.
If you don’t think that you have the tolerance or the patience to watch over the investments you have now, then you may think that investing isn’t for you.
This is not the case and it is very possible for you to hire a financial advisor if you want. The main disadvantage of this are that you may find that you end up losing out on profit.
Set long-term goals
Why are you even thinking about investing in the stock market? Will you need your money back in six months? A year? Five years? Are you trying to save for your investment?
Things like this can really help you to determine what investments you need to make and why. Before you even think about investing, you have to make sure that you know your purpose and your likely time frame for the future.
If you are likely to need to have your investment returned in a couple of years, then you need to think about another type of investment. The stock market can be volatile and this means that you might not have all of your capital available for when you really need it.
By knowing how much money you are going to need in the future, you can then calculate how much you need to invest, and you can also produce the desired result.
Retirement calculators range in terms of complexity, but when you use them you will soon find that you are able to get a fantastic result with very little time. If you want some help then it’s worth looking into a free day trading simulator.
Understand your risk tolerance
Risk tolerance is a psychological trait that tends to be based on genetics. It’s positively influenced by income, wealth and education. Your risk tolerance is based on how you feel about the risk and the amount of anxiety you feel. If you want to help yourself, then you need to understand your risk tolerance. When you do this, you can avoid investments which are most likely to leave you feeling anxious. As a general rule, you should never keep an asset which keeps you up at night. Anxiety stimulates fear and this can trigger an emotional response rather than a logical one. If you are going through financial uncertainty, you need to be able to keep a cool head because if you don’t, then you may find that you end up suffering in the future.
Stock market returns cannot be guaranteed at all. You might be able to assess the likelihood and the probabilities, but you will never be able to guarantee anything.
If you invest more than you can afford because you are convinced that you are going to get a sure-thing, then this will work against you and you may even find that you end up in a worse situation.
If you want to get around this, then you have to know that volatility is expected and that time frames really do matter. Surveys have shown that over a 10-year period, stocks are 90% more likely to do better when compared to cash. When you look at an 18-year period, you will see that this shoots up to 99%.
At the end of the day, as long as you are willing to do whatever you can to reduce the risk you are facing, the more you can guarantee a good investment.
Maximise your retirement savings
When you have your savings all set, it may be a good idea for you to look into your company’s 401K plan, if you have one. If your company are able to match your contributions, then you may want to participate in this as you will be able to capitalise on free money.
If you are not able to invest the full amount possible then this is understandable, but you do need to make sure that you do everything you can to try and make sure that you do everything you can to try and meet the minimum spend.
If you know that your company does not match what you put in then a 401K might not be the best bet, but you still have to make sure that you save. In this situation, it may be worth looking into other options if you can as you need to be able to put away as much as possible.
Monitor your goals
It helps to keep your debt to a minimum, if possible. You also need to make sure that you pay down your balance on any student loans if you can. After this, you can then decide on what is most important to you, as mentioned above.
When you do this, you need to make sure that you pinpoint some of the crucial points in your investment strategy so that you can then be more aggressive, or more cautious with your investments.
It’s all very well setting goals, but you also have to try and make sure that you are setting milestones along the way so that you can make the most out of every single investment.
If you want to try and make the most out of your investment then you need to try and follow this guide so you can make the best decisions right from the start.
Remember that every single investment you make is going to be different, so even though you are going to have the same strategy, you need to make sure that you adapt it to meet the risks that you are going to face. If you do this, then there is no reason at all why you can’t come out on top.
Photo by Austin Distel