It can be daunting to step into the investing ring and pull all the right punches and combos as an inexperienced novice. But even without the experience and education of smart and successful investors, average Joes and Janes can make a killing on their portfolio just by sticking to sound investment principles and technical basics. Here are eight tips that can help you cross that frightening and overwhelming threshold:
Don’t Complicate Things
For most people, complexity is attractive. From an investing standpoint, this means using sophisticated technical indicators and trading software to try and guess a scenario where there is 50/50 chance that you’re either right or wrong. Keep your strategy for choosing investments simple and straightforward. Over time, you’ll be saving yourself from a lot of stress and frustration that these so-called sophisticated systems bring.
Chase Value
Whatever asset or portfolio you choose, make sure it has intrinsic value. Keep in mind that cheap doesn’t equate to value, and vice versa. Look for value where it can be found. When the fancy sales pitches and marketing campaigns wash away, an asset will have nothing but value driving its price up or down. Measure an asset’s value by looking at who the target consumer is, what potential use cases the product/service has, and the actual cost is and if it’s way too high than the value.
Buy What You Understand
There are tons of investing opportunities out there, but that doesn’t mean you should be buying into all of them. Limit your investment picks to assets that you understand and, better yet, have used at some point in time. Investing in what you know, at least at a high level, gives you a clear idea of the target consumer’s profile and what the potential use cases are for the product/service.
Stick With One Strategy
Or at most, you should have two strategies – one for short-term and another one for long-term assets. An investment strategy acts as guidelines on how to filter the wide selection of assets that are right in front of you. It helps mitigate risk and lets you focus on assets that have potential to grow over time. There are several strategies out there, from growth and value investing to collar options strategy, so you don’t have to reinvent the wheel. Make sure the strategy you pick aligns with your risk appetite and financial objectives.
Get a Broker
All the tips you’ve read so far won’t matter if you don’t have a broker. Majority of, if not all, the assets you’ll find today goes through an exchange or requires a middleman to procure. Narrow down what asset you want to buy into and do a quick Google search on which brokers are popular and legitimate.
Don’t Underestimate Dividends
A lot of company stocks pay dividends, which is basically interest paid out by a company when they are in good economic shape. While it sounds like an infinitesimal amount, it can add up to a significant amount over time. Say you invested in 20 shares of Ford today, which is hovering around $10 per share. You can earn up to $5 every scheduled dividend payout.
Take it Slow
Successful investing isn’t about pace, but about consistency. Set a schedule for reinvesting and adding to your portfolio. A dollar-cost averaging strategy, for instance, can help you stay consistent by determining how much to put into stocks every month or so.
Avoid the Hype
Don’t get drawn into over-hyped assets without researching the underlying value for yourself first. Following the herd is risky and can result in huge financial losses. Just because an asset jumped hundreds of percentage points, it doesn’t mean you should buy into it right away.
Final Thoughts
Investing is a game of looking for value wherever and whenever it can be found. Lose the frills and fancy terminologies and tools and stick with the fundamental principles that dictate sound and effective investing.
