The world of investing, just like our world itself, is becoming increasingly redefined. A few years ago, to invest in stocks, for example, you needed to go either to your broker yourself or to put a call through to place your orders.
However, this is 2019. Technology has advanced more than ever before. And now, there are many online stock brokers who will save you the stress of having to go to see your broker yourself before you can invest.
Thus, investing has never been more accessible than it is now, in 2019. And you should take advantage of that.
· First, what is your risk appetite?
As queer as that question sounds, it should be the foundation of your investment strategy. The extent to which you tolerate risk is important because it will determine the type of financial asset you will choose to invest in.
To be able to answer that question well, you need to consider certain things about yourself. For example, your risk appetite depends on your personality, age, and personal responsibilities. Naturally, you could be a high-risk taker, or you could be risk-averse.
Moreover, a 24-year old, for instance, can take on more risk than a 64-year old. And, given the same level of discipline, a man with too many personal responsibilities might not be able to commit to investing as much as another man with lesser. All these are important considerations to make before you evolve a strategy for investing.
In that regard though, the 50/20/30 rule for budgeting can help. That is, you can develop the habit of committing 20% of your after-tax income to your savings and investments.
· Find the right mix of stocks, bonds, and currencies
Investing is a wonderful tool. If you assume a long-term perspective to it, it pays. Research has shown that notwithstanding the intermittent dips in the stock market, for example, stock market investments generally rise in value over time.
Nevertheless, you should consider investing after you have stashed up enough cash in your retirement and traditional savings account first. Next, you should work towards obtaining the right mix of financial assets for your investment portfolio.
For instance, if you care primarily about the preservation of your capital and secondarily about return, then your portfolio should not be more than 50% in stocks. As conservative as this might sound, it works well to generate reasonable returns still.
And instead of picking individual stocks yourself, you might want to invest in low-risk, diverse index funds. By spreading your money across multiple stocks, you would stand the chance of incurring lesser losses.
· Use the five percent rule to your advantage for personal trading
If you are excited about the fast tempo of the trading life, there is a way you can go about it without affecting your investing goals. Apart from the tips discussed earlier on about investing, you can also allocate a part of your portfolio to personal trading.
Experts recommend that this should not be more than 5%. That is, 5% of your portfolio can be dedicated to catching the short-term market moves to reap some gains. Although this is fraught with risk, it is really a good and bold attempt.
However, with this strategy, ensure you are able to manage your risk. Hence, you can decide to start with small trades. Most traders get burned because they start big and trade big. So, they fall big, too.
· Learn to do your own research
For both your investing and your small-sized personal trading, you must learn to do your own research. The most terrible mistake to make, at this point, is to relinquish all your research responsibilities to third-party agents such as financial news websites or any other platform.
You can use those as a guide. They should not be your mainstay source of investment information. In fact, they could complicate your investing. A simple, long-term investment strategy can be enough to yield wonderful returns for your portfolio.
Do your own research and simplify, as much as possible, your investing.
· Be deliberate in your choice of broker
Be deliberate in your choice of broker. This means that you should carefully scrutinize your options before you settle for one. And there are some points with which you should assess any broker you are considering using. Even though there are many brokers out there, you should be meticulous in your choice.
First, is the broker regulated? That is, it is essential that you know that the broker you will be using is duly registered with the regulatory authorities. And there are foremost registered brokers which also offer investment management services.
Any broker you will use must fulfil the following conditions:
- Is it registered with a recognized regulatory agency?
- Is its trading platform beginner-friendly and well-equipped?
- Does it have standard trading conditions? How does its charge its fees?
Fees, especially, can be tricky. Commission and other charges are one of the costs that eat deep into the profits of investors in general and traders in particular. So, it is important you go for only a broker that will not burden you with too much of them.
Also, your broker must be one that provides educational content for its users. A good broker should be committed to the success of its clients; it can enhance it by educating them. The educational content can be in the form of webinars, videos, and articles.
· Never stop learning
Successful investors are life-long learners. Market conditions are not static, so they strive to update their knowledge of them. This is why making money through investing is not, in any way as you might think, an easy walk through the park.
To succeed, life-long learning is one of the prices you will have to pay. It is a sacrifice you must diligently commit to. Investing is not a get-rich-quick scheme. Instead, it is a long-term endeavor. It is risky, too. However, as Warren Buffet recommends, by investing only in what you know, you will be minimizing the risk.