Investing Tips – Every Investor Should Know
Views • 21st Jul, 21
Over the years we have spent a lot of time explaining to our existing clients and potential clients about how and how not to invest their money. We have learnt that there are several issues that individuals should know and understand prior to making investment decisions. Below we list some top tips to help you on your investment journey;
Everyone wants to make the most of their savings if it be for retirement or just capital gain, investment diversification is so important in the process to reduce the overall risk while increasing the potential for overall return.
Owning a variety of assets minimizes the chances of any one asset hurting your portfolio. The downside is you never fully capture the large returns of a shooting star. The net effect of diversification is slow and steady performance and smoother returns, never moving up or down too quickly. That reduced volatility puts many investors at ease.
2: Adopting a Long-Term Approach
By choosing to stay invested over the long term, investors are positioned to get the most out of their funds, in terms of capital gains and the accumulation of reinvested distributions. The benefits of adopting a long-term horizon include; Compounding Returns over Time, Potential for Higher Returns, Keeping Emotions at Bay.
Warren Buffet said: “Nobody buys a farm based on whether they think it is going to rain next year or not. They buy it because they think it's a good investment over 10 or 20 years”.
3: Do your Research
Investors may find it easier to build a diverse portfolio using exchange-traded funds (ETFs) or mutual funds, investing small amounts in individual stocks can be a good way to learn the intricacies of the market. However, it usually isn’t enough to just throw your money into the market — you’ll need to do some research first.
Your research should include; stock analysis, reviewing a company’s financial reports, asking your Financial Adviser or use the research tools provided by your investment platform, understand the basics of the company and lastly review the leadership and company values of the stock you are looking to invest into.
4: Don’t try and time the markets
When investing in stocks, try the buy-and-hold strategy as opposed to day trading. Nobel Prize-winning economist Paul Samuelson wrote, “Scores of documented statistical studies attest that not one in ten ‘timers’ ends up getting back into the market at bargain prices lower than what they sold at earlier.”
In fact, you might end up doing worse damage, says Saranovitz. “Many traders panic and sell stocks too late, after a large drop,” he says. “That could be the worst time to sell.” When learning the stock market for beginners, it’s hard to calculate exactly when to sell a particular holding, but signs include a high price-to-earnings ratio, stagnating or dropping sales, and decreasing profit.
5: Managing Risk Tolerance
Risk is a fact of life. We encounter it every day-even during life’s most mundane activities. Some risks are minor and barely register on our radar, but the risk that things won’t go as planned is always present.
In the world of investment, risk generally relates to uncertainty. It refers to the possibility that an investment could be lost entirely, or that an investment will yield less than its expected return. Simply put, risk is the chance that an investment will perform differently than anticipated. Also just like in the real world, risk isn’t necessarily negative. Where some see risk, others see opportunity.
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