Five Investment Basics for New Investors

Do you feel you are interested in investing but afraid you don’t know enough? Or are you concerned about losing money? Well, I am here to tell you that you aren’t alone!

The truth is that no one knows all there is to know about investing – even those that do it for a living daily. However, financial professionals have garnered a few basics that have proven to increase the chances of success. By the end of this article these tips will help you feel more confident about investing.

1. Create clear goals for what you want to accomplish with investing

You should sit down and really evaluate what you want to accomplish by investing and how much your financial resources will allow you to invest before taking any action. This will help you come up with clear goals you want to achieve and by which you measure your success. There is truth in the adage, “a goal without a plan is just a wish!” Some possible questions to ask yourself in setting these goals are, “How much time do I have before I will need this money?” or “Am I investing for more short-term or long-term goals?” This will help you have a clearer vision of the appropriate risk/return you are willing to take on in investing.

2. Get started investing by simply putting money in

It is hard to earn returns by investing if you don’t put money in or consistently contribute. It can be easy to get caught up in the news of when to buy or sell in the market, but one of the greatest contributors to success in investing is simply putting money in and doing that regularly. For illustrative purposes only, here is an example. Let’s say you invested $1,000 one month, stopped putting money in, and generated a return of 15%. This would give you a return of $150, which is not bad at all. But if you kept investing that same $1,000 each month for 5 years and only generated a return of 8% vs. 15% – at the end of 5 years you would have a return of $4,800. I think you’ll agree that $4,800 beats $150 everyday! So, if you want to achieve success in investing you must get started by simply putting money in.

3. Remain consistent with your investing plan

The prior point did a good job of introducing how consistency with putting money in can really be beneficial for investment returns and helping to accomplish goals. There will always be times when you feel it might be best to sell an investment based on a market downturn. You could also think it may be best to buy another investment based on current market performance. Sticking to your investment plan to accomplish your goals should always be considered before making a change even though it can be hard to do. Consistently putting money in and remaining consistent with your investment plan to accomplish your goals is a better recipe for success instead of reacting impulsively to every piece of news about what action to take based on market conditions.

4. Diversification in your assets

Diversification is an investment strategy that helps to lower your portfolio risk and achieve more stable returns. Diversification lowers your portfolio’s risk because different asset classes do well at different times; some perform better during down markets and others when the market is on an upturn. An important decision for every investment portfolio is how much to allocate to different types of investments. The mix of investments such as stocks, bonds, property, or cash is referred to as your asset allocation. Essentially that means if one business or sector fails or performs badly, you won’t lose all your money. Having a variety of investments with different risks will balance out the overall risk of a portfolio and help you in accomplishing your goals.

5. Always keep your goals in mind

It can be tempting to give in to impulse buys like purchasing a new wardrobe or ordering take-out three times a week, but it is imperative to make sure to exercise some financial discipline. If you know actions like this will decrease the likelihood of you achieving your investment goals, you might want to limit them. A useful way to stay on top of your spending is to create a realistic budget. If you plan to buy a large gourmet coffee every single day, add this to your budget. You need to be transparent and honest with yourself about where your money is going. This will also help you to clearly determine what money you have available to invest. Above all, stay focused on your end goal and what you’re hoping to achieve. This will be the biggest motivating factor for you to maintain your discipline.