Concepts beginner investors need to know
Investing wisely can provide you with a way to grow your wealth and live out your dreams, but getting started can be daunting. To set yourself up with a solid investing foundation, it’s important to have a good grasp of what’s involved beyond just money and be comfortable with a few key investment principles.
Here’s what to consider before you make any investment decisions.
Know your financial goals
Where does investing fit into your financial plan? Your financial plan will give you a comprehensive overall view, and based on your financial goals, you can determine the type of investments needed, the path to achieving them, how much money you need to invest, and for how long.
Don’t invest in anything you don’t understand
You don’t have to be an expert, but you need to understand what a company does, if and how they make a profit and how investing in them will pay off for you. It might be a good business, but does it make money, and how does it structure sharing in its earnings?
Just because the price goes up doesn’t mean there’s value in the business. Jumping on every bandwagon could cost you dearly. Successful investing requires knowing what you’re getting yourself into so that you can balance the risk and reward.
Invest for as long as you can
It’s not about timing the market; it’s about how much time you have in the market. That way, you can benefit from growth but also compound interest. Knowing you’re in it for a longer term and that the stock or asset will recover will enable you to make carefully considered decisions instead of being (overly) reactive to short-term fluctuations.
Diversify your investments
By having a mix of investment types (stocks, bonds, cash, property etc.), you’re spreading your investment risk and lowering the potential for volatility that having all your eggs in one basket has. You’ll also be widening the potential and areas to grow your money.
Understand risk and know your risk tolerance
With any investment, there is the risk of loss. Whether it’s lost value, underperforming markets or prices that have fallen, understanding that you can lose some or all your investment will help you determine the type of investments that are right for you and how much risk you’re comfortable with taking on to achieve your goals.
What’s your investment style and strategy?
Why do you want to invest: is it to grow your wealth or to pay yourself an income? Is this type of investment the right way to achieve that? Do you want to manage your investments on your own or employ an expert to help you?
Figuring out the approach(es) and strategies you feel comfortable with will help guide your investment decisions. Different strategies will have different outcomes, but the best investment strategy is the one that gets you to your financial goal.
TOP TIP: Speak to one of our expert financial planners to help you understand the right investments for you and where to start.