Are you looking for a way to multiply your savings? You already know that keeping money in a savings account or deposit does not pay off in the long run, because inflation eats up most of your profits and you are wondering how else to invest your free funds? Or are you hesitant whether investing is for you? Learn the 7 basic rules of investing for beginners and see for yourself that investing is not that difficult at all.
Don’t panic and avoid emotions
Emotions are the worst advisor of any investor. Try not to panic and not to make any decisions too hastily. Overcome not only fear, but also greed. Turn off your emotions, turn on your common sense. Instead of emotions, be guided by analysis, expert opinions, knowledge. Thanks to them, you will gain more! Also, remember not to start investing when you are driven by strong emotions, you are at a difficult or breakthrough moment in your life or you are facing important family events.
Invest in what you know
Warren Buffett, one of the most important figures in the investment world, used to advise beginner investors to invest only in what they know about (in companies, sectors, markets, etc.). It is clear that knowledge of the industry helps in predicting trends, but what if we do not have expert knowledge of any market, and we want to invest money, for example in shares (after all, it is the stock market that makes the most money!)?
You don’t need to know all financial products and be an investment expert to become an investor and start accumulating wealth. An excellent option for investors without detailed knowledge of the stock market are index funds investing in ETFs, which automatically track the “composition” of the selected index, making them highly diversified and allowing you to become a shareholder in hundreds of the world’s best companies. Moreover, investing in ETFs does not require your time commitment or expert knowledge. You deposit money using an application or online platform and fund your investment when you want, and the entire exchange works for your profit.
Never invest all your savings
If you want to invest, do so, but don’t invest all your savings. Leave yourself some funds “for a rainy day”, so that in the event of an urgent financial need, you are not forced to stop investing. Remember that not all investment products are highly liquid, and in most cases, you will lose or significantly reduce your potential return on your investment. The best investments are the long-term ones, so always leave yourself some money for sudden, unforeseen expenses, and the safety cushion created in this way will protect you from losses related to breaking the investment ahead of time.
Moderation and reason are also related to another principle of investing, which says to invest with a spoon, not a ladle. What does that mean? Never invest all your savings in one place and at one time. Make sure your portfolio is diversified, invest in batches, little by little. This will allow you not only to reduce the concentration of your portfolio, but also to average the purchase price. This is what distinguishes prudent investing from casino and gambling.
Think ahead and be patient
As we have already mentioned, the best investments are the long-term ones. The longer you save or invest, the higher the rate of return. It is not without reason that one of the popular investment strategies is “buy and hold” and requires you to “hold” the purchased shares even when their value falls (a day, a week or even a month). Markets are volatile, but they are rising in the long run. Therefore, do not succumb to emotions, arm yourself with patience, think ahead and do not give up on your investment when it falls. Let the long-term perspective and the vision of financial freedom that you will be able to enjoy in the future be your main motivator.
Take a close look at the fees and commissions
Unfortunately, in the case of most investment products, commissions and fees “eat” a large part of the investment profits, so always read the terms and conditions very carefully and look at all the provisions regarding commissions.
If you want to maximize your real profit, choose low-cost investments – such as automated investments in ETFs. These funds automatically map the stock market and do not require human analysis and management, so you usually pay less for this investment than for classic, actively managed investment funds.
Ensure a wide risk distribution – remember to diversify your portfolio
Diversification of the investment portfolio, and thus diversification of risk, is the basis of safe investing. What does it mean and what does it mean in practice? Do not invest all your money in one type of investment, in the shares of one company, etc. When creating your own investment portfolio, choose from different investment products or bet on solutions that are diversified by nature, such as ETFs, which consist of shares in hundreds of companies listed on a given stock exchange. This way, instead of “betting” on the stocks of several companies, you get a ready-made, diversified basket consisting of hundreds of stocks and bonds. If the value of several or even several dozen of them falls, hundreds of them continue to record growth. This is what the diversification of the investment portfolio and the wide distribution of risk are all about.
Develop the habit of saving and investing regularly
You don’t have to be a millionaire to start investing. Thanks to modern financial instruments and their flexibility, you can start your investment with just a small amount. In this case, however, it is important to save and invest regularly, contributing to your investment once a week, month or year. Note that by developing positive financial habits, you are able to save a certain amount every month, and such savings do not cost you many sacrifices. On the other hand, over the years, regular funding of a long-term investment can really make a difference in terms of the final amount. If you’re curious about how regular investments translate into a rate of return, read our article on compound interest.