Does the thought of making your first investment kind of scare you? Do you know why that is? It’s because you are headed into the unknown. In this article, I’ll shed some light on your still dark and foggy road to investing, and help you with some key tips for making it easier.
You need to understand that every investment comes with risks. Your first step is to learn about investing, diversifying your portfolio, developing a solid strategy, and always considering the pros and cons of every investment. Also, you should analyse each company and understand the industry you are investing in. You also need to set aside a budget for investing, and last but not least—have patience.
I will elaborate on each of these points to help you understand why they matter. By the time we get to point ten, I bet that you’ll already feel more sure about taking that first leap. You can also learn in this post what you can do to reduce risk and how to actually make that first investment.
What Should First Time Investors Know—Top 10 Tips
1. You Don’t Need To Trade Non-Stop To Be An Investor
The media often portrays investing as a hectic rat race. We see these aggressive, money-obsessed men in suits who trade stocks and bonds as quickly as eating chocolate. You should know that the reality is different. So, erase those images, and let’s start over.
You don’t need to consistently buy and sell assets to be a successful investor. Choose your own path. If you want to keep it adrenaline-free, you can. Simply invest in low-risk investments, gather your interest yearly or quarterly, and after a few years get your capital back.
Are you unsure which investment types are low-risk? I talked about it in my post “The #1 Investment For You (includes examples!),” so feel free to check it out.
2. Every Investment Comes With Risk
Speaking of risk, let’s make something clear—investing without risk doesn’t exist. There are low-risk investments (as I mentioned above), but every investment comes with some sort of liability.
I’m not telling you this to get you intimidated. I’m helping you to prepare. When you go into investing with risk in mind, you will be able to make choices that suit you. The confidence in investing comes from the knowledge that your decisions are in alignment with who you are and what you want.
So, before you make your first investment, look into what types of risks come with it, and browse for a suitable investment based on that.
3. Learn The Theory Before You Action It
Understanding how the market operates, what type of investments exist, what you need to look into before you invest in an asset, and overall how investing works in the first place is the foundation for sounding investing.
If you let yourself be guided by other people’s advice, you can get in trouble. After all, it is your money and you should be aware of what you are doing with it.
Lucky for you, there are a plethora of resources you can use to get acquainted with the world of investing. There are lots of books, videos, and blogs that plainly explain the ins and outs of investing so that first-time investors can understand it all.
If you are into books, I advise that you head straight to my list of recommended books. These fall under a must-read category for me when it comes to investing and making money.
Do you need more recommendations? Take a glance at the table below for recommended books, podcasts, and videos that any investor-to-be will find useful:
| Books | Podcasts | Videos |
| – Principles by Ray Dalio – The Little Book of Common Sense Investing by John C. Bogle – Good Strategy Bad Strategy: The Difference and Why It Matters by Richard Rumelt – The Only Investment Guide You’ll Ever Need by Andrew Tobias – The Behavioral Investor by Daniel Crosby | – The Investor’s Podcast – Invest Like the Best with Patrick O’Shaughnessy – Investing Insights – Invest Like a Boss – Stock Club | – Phil Town’s Rule #1 Investing – Ryan Scribner – Let’s Talk Money! with Joseph Hogue, CFA – Learn To Invest – Andrew Sather |
4. Diversification Is Your Friend
Talking about diversification should never get boring. Having a diversified portfolio will ensure that you don’t lose all your money if one asset lets you down.
For example, if you only invest in a single stock and the company goes bankrupt, you will be left with nothing. This can’t happen when you have a diversified portfolio of both equities and fixed-income investments.
Diversification makes sure that you always have other assets as a safety net. Also, you’ll always have income coming from those investments that are still at full speed, and you can use that money to fill the gap made by the failed investment. Learn more about the subject of diversification in my post “Only Invested In One Stock? Here’s Why That’s A Bad Idea.”
5. Don’t Go In Without A Game Plan
Without an investing strategy, your efforts to make money will be less likely to succeed. Having predetermined guidelines will prevent you from making rash, impulsive decisions that will hurt your wallet.
So how do you develop an investment game plan? Consider your risk tolerance, the time frame you want to focus on, the profit you want to earn, and your goal.
Investing will be so much easier when you have this figured out. For example, if you have low-risk tolerance, you want your money in 5 years, you need X thousand pounds, and you want to buy a house, your search for the right investment will be narrowed down, and the chance of making the wrong pick will be slim.
If you are investing with an end goal of purchasing your own house, you can read more about this topic in the post “Investing Money To Save For A House: Is It Clever?.” This is where you can get some great insider tips for achieving that goal.
6. Always Consider The Pros And Cons
Do you know what is the best way to assess an investment? To analyse it objectively. Don’t get carried away with the benefits of buying a certain type of asset. Remember that there are always two sides to the coin.
Let’s say that you are unsure whether to buy stocks or bonds. How do you decide which to go with? Review their pros and cons. Pros and cons will help you get a bigger picture of what you are getting into.
You can ask your financial advisor to present the benefits and drawbacks of different types of investments. Or, you can do the research yourself. To get you started, I recommend that you look into the post I wrote about the pros and cons of investing in bonds.
7. Company’s History And Performance Will Tell You A Lot
When investing in a business—whether that’s buying equity or debt investments—you should first analyse it. Scraping the surface isn’t enough if you plan to put your money in someone else’s company. You must dig deep.
What you should focus on primarily is the company’s history in terms of making regular payments to stock and bondholders, its current performance, and growth potential. To assess the latter, you also need to analyse the industry a little bit and whether the company has shared some official news on its future plans.
8. If You Don’t Understand It, Don’t Invest In It
Did you find a company share that sounds really cool? A biology tech chemistry nanorobotics, or whatever, company that just went public, and you have a burning desire to buy into it. You ignore the fact that you know nothing about this industry and you aren’t even sure what the company does precisely, but still, you feel like it’s something you fancy owning. Now, this is something you shouldn’t do.
To apply the above-mentioned tip and analyse the company’s performance, history, and growth potential, you need to understand the industry. I’m not saying that you need to be an electric car engineer to invest in a company that makes electric cars, but at least get what they do and what their business is promising.
9. Know How Much You Can Invest
No matter whether you thrive to become a full-time investor or you want to earn some extra money, you need to set an investment budget. This kind of limitation will help you stay cool-headed and not struggle to pay rent because you invested every single penny you had. We won’t let this happen, because from now on, you’ll know that you need a budget.
It’s easy when you’re making a one-time investment, but for those who want to invest more regularly, you need to know what you can afford to dispose of.
How to get this magic number? Well, consider how much you need for a living, give yourself a liquid emergency budget for unplanned expenses, and the rest can be your investing money.
10. Be Patient
Most investments demand time to bring profit. So, if you plan to invest, you need to arm yourself with patience.
First, you need patience before making an investment. You have to learn, discuss with your financial analyst your options, do some research on the investment, think through what’s best for you, and then put your money in.
Then, you need to be patient while waiting for the money to grow. It takes years before you get to spend what you earned.
Investing should never be a rushed decision. If it is, it probably won’t end well. That’s why patience is so important. It assures that you are making smart moves.
How To Reduce Risk As A First-Time Investor
Most first-time investors are primarily troubled with the risk aspect of investing. There won’t be anything to keep you up at night if you approach risk strategically.
Here are a few risk-reducing tips you should implement into your investment strategy:
- Identify the risks that come with the investment;
- Understand how each risk affects your investment;
- Look into the market history of a set industry;
- Understand what fees are involved;
- Use diversification as your risk aversion tool;
- Leave your emotions behind, and if you need to sell, base your decision on facts; and
- Keep your first investment small
How To Start Investing
We covered everything you need to know as a first-time investor, but there’s just one last thing I want to leave you with—how to actually make that first investment.
Take these essential steps into consideration when you decide to stop talking the talk, and start walking the walk:
- Learn all there is about the investment you want to make;
- Define your investment goal;
- Outline your strategy;
- Decide how you’ll build your portfolio;
- Make the investment;
- Stick to your strategy and keep an eye on the market; and
- Monitor results and make adjustments to your portfolio when needed.
I discussed each of these steps in detail in the post “Become an Investor From Ground Zero – Easy 7 Steps!,” so if you want to know more go ahead and check it out.
How To Know If You Are Ready To Start Investing?
Should you do it? Should you really do it and invest? Well, the fact that you are here, reading this, researching, wanting to know how investing lives and breathes already gives you the answer—you are ready.
The thing about investing is that you have to be willing to invest in yourself before you invest in assets. You must be open to learning and doing the work before you can earn without working at all.
If you are ready to dedicate hours to reading, listening, researching, and getting to know the intricacies of this endeavour, there is no doubt that you are ready to welcome investing into your life. And don’t forget that you don’t need to do it alone. You can always hire a professional advisor to point you in the right direction.