Being successful in the investing world isn’t an easy job, and you cannot do it in a day or two. It’s also very probable that you’ll make some mistakes along the way and lose some money (most traders do), or regret a past decision of not buying a particular stock right before it exploded.
However, when you do it correctly, you turn all the odds in your favour and it becomes well worth all risk. That’s why, today, I’ll share with you the best tips and recommendations I’ve learned throughout the years as an investor so that you can avoid making the same mistakes I did when I got started and you can hit the ground running and on the right path to building your wealth through investing.
#1 Get To Know The Market
The first piece of advice I can give you is to never stop studying. It doesn’t matter if you’ve only been investing for a month or for a decade, knowledge is the force that will let you choose winning stocks and make wise investments. You need to know that investing is inherently unpredictable, but you can still gain enough insight through knowledge to make more good decisions than bad ones, on average.
Yes, there are hundreds of stories of people who made it big in the stock market and became wildly successful investors, but the number of people who lose money is far bigger. It makes sense, once you think about it. For a few to make a lot of money, many others have to lose it. Studying and learning everything you can about investing and the markets is the best way to belong to the first group and not the second.
That said, choosing and maintaining stocks isn’t an easy task especially as a new investor. However, there’s a workaround that’ll let you start investing as soon as possible without having to wait months to learn all the ropes, which is by subscribing to a high-performing stock newsletter. If you’re eager to get started on investing, that’s probably the fastest and safest way to do so until you learn enough to make your own choices.
#2 Decide How Much You Want To Invest
The second thing you need to consider is how much you’re going to invest. This is actually a very important part of personal finance and it’s closely tied to budgeting. Budgeting is the art of allocating your income, and the number of opinions revolving around how to do that is not small. However, regardless of whether you go for the 50-30-20 rule where you spend 50% of your income in needs, 30% in wants and save or invest the other 20%, or for a more aggressive 30-10-60, there are a few key ideas to consider:
- You should never invest all of your money.
- You need to make sure to leave enough of your income to pay for your needs and wants and you should invest the rest.
- You should only invest as much as you’re willing to lose.
The first two pieces of advice are fairly straightforward and self-explanatory. The third one, though, reflects a simple reality of investing, no matter how good an investor you are, you’re never 100% guaranteed to succeed. Since there’s always the risk of losing your investment, you shouldn’t invest more than you’re comfortable losing.
A good exercise is to imagine losing every penny you invest. If that makes you anxious or if you’d rather not even think about it, then it’s probably too much. Many make the mistake of investing without taking their income and expenses into account, creating great financial problems for themselves when investments don’t work out.
Create An Investment Strategy
Your investment strategy is the set of rules and processes you use to guide your decision making when it comes to investing. In other words, it’s what guides the way you choose your investments, when to invest, how to set up your portfolio,etc. Crafting your investment strategy means defining how you plan to achieve the goals you set for yourself when you decided to start investing.
When it comes to strategy, both new and seasoned investors can be classified into five different groups, according to what’s known as the Baillard, Biehl and Kaiser model or BB&K model. The model classifies investors and their strategies according to two dimensions related to their behavior when making decisions, namely, their confidence and their method of action. These 5 groups are:
- Individualist – caring and conscientious, self-sufficient people
- Adventurer – volatile, unpredictable.
- Celebrity – follows the news and the trends.
- Guardian – don’t like to take risks.
- Straight Arrow – middle ground from all the above.
Most people will usually be classified as Straight Arrows, which means that they’re neither confident nor anxious, and they’re neither impetuous nor careful. However, experts agree that the best investment results are usually made by individualists who are confident decision makers but who are also careful, and that’s what you want to aim for when choosing your investment strategy. Confidence is something you’ll gain over time and with experience, but being careful is something you can do from the start.
But how do you even know what strategies to implement? You won’t know until you study and learn about different proven and tested strategies, which brings us back to tip #1. However, one easy way to be exposed to good investment strategies is, again, to sign up for a financial newsletter, as these almost always include this type of information along with case studies to back it all up.
Concentrate On Long Term Results
Investing is about letting your money grow over time. This means riding out eventual short-term losses and focusing on the long-term gains. As a new investor, this is probably one of the hardest things to do.
It’s only natural to become anxious when you see your portfolio lose value, and your first reaction may be to sell in an attempt to cut your losses. However, if you did good research when choosing your investment and the premises that led you to choose still hold true, it makes more sense to hold on to it.
Remember, investing is about long-term goals. If you’re thinking about short-term gains and losses, that’s not investing. That’s trading.
The Bottom Line
Investing wisely is not easy, but it isn’t impossible or extremely tortuous either. It’s all about learning as much as you can and going to sleep a little smarter than you were the night before and letting that knowledge guide you. Having said that, reading all the investing books in the world still won’t ensure a successful investment, so once you feel confident enough about a particular investment, just go for it.
As long as you never stop learning, you choose your investments carefully, follow a rational and well-thought-out investment strategy, and focus on long-term growth instead of short-term gains and losses, you’ll be well on your way to becoming the best investor you can be.