101 OF INVESTING FOR BEGINNERS : USE COMMON SENSE
Most of the new investors are young people who generally are attracted to it because of movies or chances of getting rich quick. While chasing this you can end up making a lot of mistakes which can cost you your financial health. These mistakes are easily avoidable if you keep in mind some basic points. although keep in mind that while investing you will keep making mistakes and that’s how you learn and move ahead but it’s much better to avoid as many as possible. The art of investing is never taught in schools and rarely in college unless you choose this field. In most households where the parents aren’t into investing, they won’t be able to teach their children either. This leaves them no choice but to look for advice on the internet, which can be confusing and dangerous.
COMPOUND INTEREST IS YOUR FRIEND
Remember that math class which you thought would never be helpful in your life? Well this one just might be. People don’t understand the power of compound interest and how much it can change your life. This is precisely one of the reasons why I suggest young people to start investing as early as possible, even if its just $100 per month but just do it.
Let me show you why, if you keep investing just $100 per month for 10 years with an average annual return of 10% which is very doable over a long run, and let’s assume you started this by the age of 21 then by the time you turn 31 you will have $20,000 as capital. Remember that this was just with $100.
DIVERSIFY
If you are going to be trading in stocks, I would highly recommend diversifying your portfolio. Don’t just buy one company stocks, buy different companies within the same industry. Then buy different stock in different industries. It happens very rarely that all sectors of the economy are equally hit whenever something happens.
I am talking about stocks only because of its small ticket to entry. You can buy one right now with your $50. Once you increase your wealth your options increase as well, now you can invest in new startups, real estate, businesses. This will diversify your investment portfolio further.
But why do you need to diversify so much? Imagine the stock market crashes, real estate crashes and startups crash as well, you still have your side businesses, maybe royalties to generate extra income. You should always do it for security.
RESEARCH
This is the difficult part. Everyone wants to get rich but very few people want to work for it. Its very tempting to buy that hot stock through your friend’s recommendation, or to invest in something looking for high returns. Remember this fact, Warren Buffet built his wealth over decades with an average annual return of 22%.
If any deal or offer is promising you very high returns always conduct your due diligence. Ask your friends and family, read about it online, consult a CA about it. This brings me to the next point.
DON’T BE CHEAP ON HELP
Professionals exist for a reason; they have their whole lives dedicated to learning about the financial world. before taking any steps, you should hire a good CA who can guide you, help you and even manage your money for you. Remember that if you don’t have time to read about companies and different investment opportunities then you don’t have to, you can let someone else manage your investments for you.
USE COMMON SENSE
If a deal sounds too good to be true, then it probably is. Listen to your gut when something feels off, you don’t have to make rash decisions. Money if not running away from you, investments are a marathon not a sprint. Most people who try to take more risks for a chance to get rich quick end up going broke by the time they hit their 30s.
Also follow new trends to see where they are headed. The financial markets are evolving on a yearly basis and new opportunities are being presented almost every year. Take Bitcoin for example, nobody could have predicted what happened. But remember to never go full in on any, especially on something new.