The First Time Investor’s Guide

by Redeeming Riches on February 18, 2013

So you’re looking to jump into the world of investing. Congratulations. As anyone will know following the financial downturn of 2007-2008, investing is not an activity for the timid. Sure you can make great gains in the financial world, as Gordon Gekko will whisper in your ear, but investing can lead to great loss and distress.

With that  in mind, there are some simple steps and warnings that you can heed as a first time investor. Here are five tips to get you started.

Know your terminology

It seems like almost an elementary step, but you would not believe how many people blindly choose to invest without a concerted effort to understand what they are throwing themselves into. Know the difference between bonds and equities? How about bull markets and bear markets?

If you’re not so fond of borrowing a book from the library or reading a dozen different websites with different views on the same matter, consider taking a course. Chosen correctly, the knowledge and confidence that an investing course can give you will far outweigh the fee it may charge.

Look beyond the immediate

Consider whether your choice investment fits your career and life goals. For example, if you’re at the prime of your working life with several decades before retirement, you can afford to buy riskier stocks and shares that may take time to generate a profit. The opposite is true if you are only a few years away from retirement.

At the same time, be wary of investing in ‘news’. This is where investors try to guess, in effect, what is the next “Apple” or revolutionary company with exponentially rising shares. As a first time investor, don’t get lured in. Remember the hype when Facebook went public but then failed to meet expectations? Stick with more reliable companies, at least at first.

Start slow

While it’s helpful to remain positive as you step into the world of investing, remember that those stories of people losing their life income in the stock market can happen in reality. So invest slowly to begin with, as you acclimatize to what trading in the market is really like as a participant rather than an observer.

Don’t be afraid to get extra financial and legal assistance in your foray into the world of investing. A thousand dollars on a financial investment advisor is a small sum compared to the amount you might gain with their assistance, not to mention the extra security of knowing that you have a ready source of professional advice.

Don’t put all your eggs in one basket

It’s a clichéd saying, but it’s been proven true time and time again. While it may be tempting to invest in one strong company and fund, assuming that it will reap a considerable profit for you, one shady deal or surprise takeover could ruin it all.

Instead, balance your portfolio by investing in more than one kind of asset. For example, if your finances allow it, consider buying a less expensive investment property and allocating some of your savings to bonds or equities.

Don’t let it consume you

Another danger as you invest is that you may deprive the rest of your finances of the attention they normally receive. For example, many people often forget about their Self Managed Super Fund (SMSF) as they pour all their energies into their new investment project. Luckily, today companies such as Clime are ready to help people in such a position, taking care of your SMSF so that you can focus on your investing.

Whether you are using an external fund manager or taking care of everything yourself, remember not to let your investing consume you. The world of investing can be heated and intense. Make sure you keep your cool!

Author bio: Sarah Chan is a university student and freelance writer who is interested in thinking and investing smart with the money that she earns.

Google+ Comments

Related Posts