Last Updated on 03/01/2021 by NM Staff
We’ve all heard stories about investors who started with nothing and made millions. This sounds easier than it is but getting into the world of investing makes a lot of sense. Even if you don’t end up becoming a millionaire, you can still supplement your income and achieve financial independence.
Like with everything else in life, investment success doesn’t come without putting in a lot of effort. So, if you want to begin your investment journey, prepare for hours and hours of hard work. To help you, we came up with a few tips that’ll make success come easier.
Begin your investment journey with research
So many people start investing without doing any research. They simply rely on what they’ve heard experts say and copy the moves that made them successful. Unfortunately, this rarely works and such investors usually don’t last long. If you want to succeed, doing research is critical. This is because you have to find what works for you and what suits your investment style. You can’t do that unless you truly understand how the market works. After all, as Benjamin Franklin once said, “An investment in knowledge pays the best interest.”
Learning about the market is just the beginning. Once you believe you know enough to make your first move, it’s time to do your homework once again. Don’t just dive into it and hope for the best. Instead, put enough time into researching the stock or bond you want to buy. Try to understand how its value will move and only put your money into it once you’re sure you’re making the right move. Luckily, finding free resources is now easier than ever. Most of the time, a simple Google search will lead you to all the information you need. Also, there are investment courses you can take and simulators you can use before you start investing actual money.
Find the right strategies for your investment journey
As we already said, every investor needs to find their own investment style. To do this, you first need to understand all the strategies investors use and identify the ones that work for you. In addition, it’s important to assess your financial situation and make moves accordingly. You also have to understand market risk and figure out how much risk you’re ready to take.
The first type of investing you might want to learn more about is value investing. It involves buying stocks that you believe are undervalued and selling them for profit. Many investors employ this strategy as it can make them some quick profit. A more long-term strategy many investors love is growth investing. When you’re growth investing, you’re buying stocks that have the potential to grow in value over time. It means you’re searching for “the next big thing” and hoping to make money off of it. The next strategy, momentum investing is basically, riding the wave. If you opt for this strategy, it’s critical to keep buying stocks that are doing well at the moment. Last but not least, there’s dollar-cost averaging. This strategy is all about making regular investments and executing other strategies as a part of it.
Master market psychology and outperform other investors
Anyone wishing to succeed in the world of investing needs to understand the game of profit and loss management. You’d be surprised to see how many seasoned investors still make rookie mistakes and fall for the most classical pitfalls of trading. This happens when they let fear and frustration take over. Stock will always move up and down in value and fear is natural. However, you should never let that fear dictate your next move. Instead, you need to think rationally and make a move that aligns with your long-term plans. In order to succeed as an investor, mastering market psychology is a must. Once you’re able to control fear and frustration, making the right investments becomes much easier.
Another thing you should never let impact your decisions is overconfidence. Many investors make a successful investment and feel like they own the world all of a sudden. They make their next moves without doing any research and end up losing money. You’ve made a good investment? Great job! Put even more work in the next one as there might be more money involved. Only investors who know how to control emotions and have realistic expectations end up succeeding.
Don’t forget to diversify your portfolio
Chances are you’ve already heard investors talk about portfolio diversification. Many beginners have heard of it, but have no idea what it really means. Basically, if you want to invest, putting all your money in the same asset makes no sense. A more reasonable approach involves diversifying your investments and protecting yourself from failure. That way, if something goes wrong with one of your investments, you still have a few more that are doing well.
People have been diversifying their portfolios for ages and there are many examples of how to do it. Throughout history, people preferred using gold for portfolio diversification. Gold always performs well and no matter what’s going on with the economy, it maintains its value. However, during the COVID-19 pandemic, we got to see some new portfolio diversification options gain popularity. Investors started buying digital currencies as they don’t have to worry about logistics. In case you’re ready to take more risk, you can always buy more stocks in a different niche to diversify your portfolio. Just make sure you do research and possess some knowledge about the field before you invest in it.
The bottom line
What’s important to understand is that there’s no clear formula to success for investors. You have to discover what works for you, keep improving, and make the right moves. Another thing to have in mind is that you should stay cautious even once you become an experienced investor. Every investment comes with some risk and the more effort you put into research, the more likely you’ll be to succeed.