The global financial market has changed and so should your strategy. The advice you learned just a few years ago may no longer work. However, some advice never gets old. Here is a list of some of the most basic things you should keep in mind if you are a beginner investor.
1. Make a Plan: this is always the first thing you should do. Understand your goals and manage your investments proactively. Your financial plan should be specific, realistic and comprehensive.
2. Have a Money Cushion: it is important to make sure you have a safety net in the case of emergency. Hopefully, you won’t have to use it, but it is good to know it’s there.
3. Spend Less Than You Earn: If you make this a habit, it will be much easier to handle the situation if your profit goes down. Don’t make the mistake of relying on the momentous success, keep in mind that the financial market is unpredictable. Learn from the stories of people who went bankrupt because they were too confident. It’s always better to be cautious.
4. Listen to Common Sense: if your intuition tells you something is too good to be true, it probably is. Don’t put your faith in whatever is advertised as a great opportunity to make quick money. Instead, put faith in informed judgement.
5. Go Through the Disclosures: although this sounds the opposite of thrilling, it is crucial to understand your rights and obligations before signing a contract. Pay attention to phrases such “this product is not insured by the Federal Deposit Insurance Corporation”; “this product is subject to investment risks, including possible loss of the principal amount invested”; or “this product is not a deposit or other obligation of, or guaranteed by, the bank.”
6. Try your strategy in a simulation before attempting it in the real world. One important part of investing is finding your own style. The best way to do this without risking any real money is to test it in a virtual environment first.
7. Do Your Research: make sure you understand what you are investing in. Educate yourself and wait for the right price. You should understand clearly how a company makes money and the main drivers that impact the industry you want to invest in. It takes experience to know the right price but keeping yourself informed will help you on the way to becoming a professional.
8. Know the difference between investment and speculation: You invest because you believe that a particular business will succeed in the long run. You speculate when you are looking for short-term profit taking advantage of the market fluctuations.
9. Control your risks: There is always a risk that you may lose money. Investors anticipate losses and know how to handle them. Some basic strategies include diversifying portfolio (but not too much, because you don’t want to lose focus), setting firm limits and not attempting to chase losses.