Ready to invest but too scared to end up as failure? Here are nine things you should understand and take into consideration to tiptoe from great losses.
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Starting an investment portfolio is a tricky business. It’s your well-earned money that’s at stake, so you also want to enjoy the returns of what you put out in the market. Now, if you’re new to investing, the concept of stocks, portfolios, and dividends may be a little intimidating. There are so many things to consider that your head may have a hard time exploring them all at once.
But no need to fret, even seasoned investors experience challenging times every once in a while. To ease your worries a bit, here’s a list of the top nine investing secrets that beginners can consider and things that can serve as friendly reminders for the seasoned investor.
- Set an investment goal.
What do you expect from your money? When you know your goals and expectations, this provides direction and purpose to your journey. It helps you choose the appropriate investment type according to what you want to happen to your seed money. For example, if you want to generate $200,000 within five years for your business capital, you know where to put your money to get that amount within the investing period.
- Know your risk tolerance level.
Before jumping into any decision, you have to determine your risk tolerance. Set how much you can afford to lose while investing. Considering the rate of return and your spending capabilities, you should know whether you’re comfortable with the low, medium, or high risk.
- Try to keep investment turnover minimal.
Choose where to invest wisely. As a general rule, put your money on things that become more valuable over time. These are things that provide higher earnings per share or those that offer more dividend checks. Depending on your risk tolerance, whether you invest in a business or buy stocks, you must keep in mind that the market may be irrational, volatile, and capricious, so be prepared for the highs and lows.
- Look for investments with tax-efficient structures.
The most common investment shelters in the US are the 401(k) and Roth IRA. People choose these kinds of investments because of the tax-efficient structure in both holdings. The 401(k) and the Roth IRA may have unique rules, tax benefits, and contribution policies, but these two are lucrative if managed properly.¹
For the 401(k) plan, you can contribute through an automatic deduction from your taxable income. The deducted amount goes to various mutual funds. On the other hand, the Roth IRA has a tax upfront, but there are no taxes on capital gains, dividends, and interest anymore.
- Diversify your investment portfolio.
Don’t rely on one single investment alone. Doing so increases the risk of losing your money once your chosen investment goes down. A successful portfolio often implies that you, as the owner, do not suffer a significant loss if a single company cuts its dividends or declares bankruptcy. So, if you can, diversify your portfolio to cover different sectors, industries, management team, or countries.
- Regulate your payment level for an asset.
Do not overpay for a single investment. The investment price is directly proportional to the earnings it yields. It means you cannot buy a low-risk investment stock and expect it to have high returns. Unless you’re investing in a startup business that has a high rate of growth, or if things turn around in your favor, then your low-risk stocks remain in its projected value.
- Invest in yourself.
Your physical, mental, and emotional health are crucial for a successful investment portfolio. Sometimes, investing may take a toll on you, so prepare your mind and body to handle the possible challenges that may come. In addition to personal wellness, you should spend a portion of your money for your growth as an investor. There are many ways to do this, such as buying and reading books, attending workshops, and looking for a coach or mentor.
- Learn from other peoples’ experiences.
Yes, they say experience is the best teacher, but you don’t have to go through all the mistakes and successes to learn things. When you learn from other people’s mistakes and useful examples, you save yourself from the stress of going through the tough ride. You can also save time and money while incorporating all your learnings to create your strategy.
- Never panic.
Bravery goes a long way when investing. There are times that the market is up, but there are moments where it’s down. Be prepared to go with the flow, but never panic even when times seem hopeless. Don’t make any knee-jerk investment decisions.
Investing your money is something that needs time and thorough thinking. Remember that it’s possible to lose your money because of one wrong move. So before you put your money at risk, make sure you’re making a calculated and well-informed decision. Use these nine practical tips to lessen the risks that you’re making and enjoy the return of investment.
1. Kennon, Joshua. “6 Secrets To Building a Successful Investment Portfolio.” The Balance. The Balance, June 25, 2019. https://www.thebalance.com/six-secrets-to-building-a-successful-investment-portfolio-357834.
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