Becoming an investor is a great way to financial freedom. But only if you’re making the right investments. There’s great potential in this field, especially with all of the markets you can get into.
As an investor, you have to have a good eye and an ear close to the ground. This goes for whether you’re investing in the stock markets, real estate, or businesses.
The beauty of investing is you can potentially hit it big. But there’s always the risk of a major flop. And this scares a lot of newbies.
How do you know when you’re making a smart investment?
Well, in this guide, we will cover the essential tips every beginner investor should know. Let’s dive in.
Don’t Invest Without a Budget
Now, the biggest mistake you can make is putting all your eggs in one basket. Investing all or the majority of your money into one thing may spell trouble for your finances.
If that investment flops, you’re left with no way to bounce back. This is why you should have a budget in mind before you make any type of investment.
You have to set a sound financial foundation. Go over your monthly expenses. About 20% of your expenses should go towards your savings.
This will be your safety net, so make sure to maintain this emergency fund.
Also, do whatever you can to pay off credit card debts and auto loans.
Open Up an Investment Account
This is where things may get a little tricky. Having a separate investment account is essential. You want to ensure your private and business income and expenses are kept apart.
Now, to ensure you have everything set up correctly, you should contact a brokerage firm. An expert will be able to help you choose a mutual fund or exchange-traded fund.
Ask all the questions you need to make sure you understand the terms and process. Don’t expect any advice on making a smart investment. However, they will gladly point you to resources you can use as a guide.
Identify Your Investment Goals
What’s your reason for getting into the investment business? If you don’t have clear goals, you won’t have a direction for your investments.
For instance, are you looking to raise capital to broaden your investment portfolio? Or are you looking to do this short-term to earn a specific amount to buy a home or make another large purchase?
Just keep in mind that short-term investing yields smaller returns in most cases. Of course, there’s a possibility you may hit the jackpot within a month, but your chances are slim to none.
You can afford to take more risk if you’re planning on investing for 20, 30 or even 40 years. Go with low-risk options if you opt for a short-term career.
Diversify Your Investment Portfolio
As we’ve already mentioned, you never want to put all your eggs in one basket. In the financial industry, there’s too much risk involved when betting all your money in one market.
The key is to make various types of investments. For instance, don’t rely solely on real estate investments. Find a few stocks to invest in. For example, software companies, startups and other entities with stocks.
As you delve into the world of Wall Street, diversify the types of stocks you invest in. Each investment should be a smart investment, so do your research. Determine which markets are bullish and get in while you still can.
Reconsider Chasing Short-Term Gains
Everyone’s looking for quick money, but the reality is there’s little chance of this happening. Hard work and patience is required to earn a decent buck.
It’s very rare to earn a big return on investment in a short time frame. Look at it this way – if you buy a fixer-upper, you’ll get more in return by fixing it up first.
In the stock market, your potential to earn more stems from playing the waiting game. Then getting out just in time before prices drop drastically.
Research all you can about your markets to see the potential return and time frame.
Don’t Put All of Your Money in the Market
It doesn’t matter what industry you decide to invest into. Never place all of your funds into the market. The smart thing to do is to only invest 1% to 2% of your capital in the stock market.
For example, if your capital is $10,000, you should only have between $100 and $200 in the stock market at a time. Once you get your return on investment, you can put more money in.
Then as your capital grows, you can afford to buy more stocks at a time.
Find a Smart Investment
You will spend your beginning stages as an investor researching markets and methods. Some newbies decide to invest in a target-date fund that they can set and forget.
If you currently have a 401k plan, this is a great place to begin investing. Try to reach a point where you’re matching your employer’s contributions dollar for dollar.
It’s important to keep an eye on the markets you’re interested in. Subscribe to newsletters that offer market insights and investment tips.
The information is readily accessible if you’re willing to do your due diligence.
Get Financial Data at Your Fingertips
Collecting data is time-consuming and tedious. Yet, it’s something that must be done if you’re going to make a smart investment decision.
At Intrinio, we have apps that grant you access to real-time stock prices. Plus, we offer tools like our Excel add-in to help you plan your investments.
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