Your first investment might seem exciting but it’s important to be prepared. Many people jump into investments without much knowledge or experience. This is not necessarily a problem as there are many resources available to help you. You can find professional advice online or in the form of apps or “robo advisors”. There are always going to be a few important things to consider as well before making your first investments. You’ll also need to know what you need to do in order to maintain a balanced portfolio. Here are fifteen basic investment tips for beginners.
Clear your debts
Before you start investing, it’s ideal to be in the best financial position as possible. If you have any debts, don’t worry, you’re in the majority of the population, but it’s advisable to clear these before you invest. You can get professional advice online to help you choose the appropriate debt management plan. Once you’ve cleared your debts you’ll be in a better place to start investing.
Arrange backup funds
It’s also advisable to have emergency funds or some sort of financial backup. Ensure you have a company pension plan and savings to cover any risk of loss. There are different types of savings accounts, some of which you can even use as investments. It’s a good idea to have backup funds that are accessible, however, and not at risk. The more financial security you have, the less likely you’ll feel forced into panic selling or emotional investing.
Make a realistic budget
Again it’s necessary to be prepared. Calculate your monthly expenses and make room for your investment budget. It’s important to stick to your budget and stay in control. If you need help setting up a budget check out some of the best budgeting apps. If you feel you’re constantly going above budget then you might need to make some adjustments.
Define your goals
Before you invest it’s important to define your goals. Whether you’re interested in FTSE shares or other types of investment, it’s necessary to understand why you are investing. Think of some long-term, quantifiable goals. If you’re not serious about why you’re investing you might be more likely to make poor choices or lose sight of the bigger picture. Your goals should also go beyond simply making money and it might something you need to discuss with a financial advisor beforehand.
Do your research
It’s recommended to read a book about investments or do plenty of online research. There are many apps that can help you with this so you can start trading online from your mobile. Ensure you are using trustworthy sources for information.
Take a look at some book reviews online and find the most relevant titles for your choice of investment. It’s important to take your time and get informed before you rush into an investment. There are also several app reviews online so you can find out more about robo advisors. The internet is a great resource, so make sure you’ve done your homework.
Only invest in something you understand
This one of many tips for choosing investments. Often first-time investors get entranced by pound signs and invest in something they know nothing about, just because it appears lucrative. It’s always better to have an idea about the field you’re investing in. You can do research here as well. Find out as much as possible about what you’re about to invest in, and the history of your investment.
Avoid investment fads
One general piece of advice for beginners is to steer clear of investment fads. It’s easy to get swept up in the hype when everyone is talking about something, but don’t just follow the herd. A recent example of these is Bitcoin. Many people invested without really understanding it, but the problem is it can be unpredictable as a currency.
Sometimes when too many investors jump on a good idea it can get exploited and diluted. If you’re not comfortable investing in something you don’t know about, seek investment advice or alternatively wait for another opportunity.
Balance your portfolio
If you’re researching how to start investing, you’ve probably heard the term diversification. This is based on the idea of not putting all your eggs in one basket. Ideally, a balanced portfolio should have a mix of various assets such as stocks, fixed income, and commodities. These will all react differently to the same economic event, thus giving you more options.
You should also rebalance your portfolio at least once a year. Compare your investment portfolio to your ideal asset allocation. You want the right combination of stocks, bonds, and cash for your investment goals. Make changes by buying and selling shares to rebalance your portfolio.
Learn how to read a prospectus
A prospectus is a guide which contains the information necessary to enable investors to make an informed assessment of their investment. It’s important to know how to look for and understand this information in a prospectus. The general contents of a prospectus should include assets and liabilities, financial position, profits and losses, and prospects and securities.
A prospectus is required by the Financial Conduct Authority (FCA) to be provided to the public. It’s also a requirement that all information should be presented in a clear and accurate manner. It’s recommended to learn more about how to read these documents.
Don’t let emotions drive your decisions
It’s vital to avoid emotional investing. This often results in poor decisions being made. It can also lead to loss and impact on your long-term investments. It’s important not to underestimate the risks associated with investments. In order to make more consistent decisions is better to focus on diversification and stay the course, even during short periods of volatility.
Use rational and realistic thinking to understand an investment’s development cycle. It’s a bad idea to react to the latest breaking news and base your decisions on this. Instead, follow a well-defined investment strategy.
Avoid panic selling
In the majority of cases, panic selling investments cost more overall. It’s tempting when the market is down, to cut your losses and sell. The problem with doing this is that you’re removing the opportunity for compound interest in the future completely. Often those who achieve the most success on the stock market are in it for the long haul. The markets will recover, the only thing you can’t be sure of is how long this will take.
Reinvest dividends and capital gains
As a beginner, it’s essential to learn how to reinvest these. Returns from shares and funds come back as capital gain. If they increase in value, you may also receive dividend payments. Not all stocks and funds pay dividends, but if they do it’s a lucrative strategy to reinvest these.
Many investment platforms offer dividend reinvestment services. These will automatically reinvest this income for you and you can use this money to buy more shares. For traditional funds, an easy way to do this is to buy the acc version, which automatically accumulates dividends.
Look out for investment fees
There are several types of investment fees to look out for. These can include custody fees, transaction fees, trustee fees, and advice fees. The amount you pay in fees depends on how much you’re planning to invest. Ideally, you want fees to be under 1%, but it depends on the type of investing that you do. Always research and understand the fees that you’re paying.
It depends often on the broker that you use. It’s recommendable to do some research and find out. If you pay less you might receive less in return, whereas if you invest in slightly higher fees then you will most likely get a better service.
Don’t over complicate things
Try to keep your portfolio simple. You can find examples of portfolios online to give you an idea. Always follow the diversification rule and choose three or four different types of investments for example. If this is your first time investing it’s a good idea to start slow and get all the advice you can from either apps of advisors.
Don’t expect it to be exciting
Although the final goal of all investments is to make money, it should be a slow and steady long-term process. If you’re looking for excitement you’re better off taking your hard-earned cash to a casino. Investing your money is always a gamble, but one that should be taken with thorough research and informed decisions. It’s natural to feel emotional when investing your money, but as said before this may not lead to the best choices.
The world of investment can appear very daunting to get into, but nowadays there are plenty of available resources to help you. Ensure you feel confident in what you’re investing in and always seek professional advice if not. In order to grow your wealth and secure a comfortable future for you and your family, it’s important to follow investment tips. This way, you’ll be off to a good start with your new investments.