Every job involves a number of challenges for beginners. This is also the case for investment, which is a more sophisticated medium. New investors may fall into some common mistakes, but when some basics are understood and they are constantly remembering, mistakes that often occur can be eliminated.
An important set of information that you’ll learn will help you make better investment decisions. Below are five basic information that every new investor needs to know.
1- Without Investing, Your Savings Will Melt
If you do not invest, your money will not increase and inflation will gradually reduce your purchasing power. For example, if the inflation rate is announced 2% next year, this means that you will have to take the same things you can get to 100 dollars this year for 102 dollars next year.
So you need to keep a minimum of 2 percent profit with the amount you’ve saved in order to keep your savings and to not lose your purchasing power.
By investing, you can earn much more than the interest income you can get from the bank. You will also contribute to the economy of your country with investment. This increases welfare in society.
2- Do Not Put All Your Eggs Into One Basket
The most important thing to pay attention to when you make an investment is not to rely on a single investment tool. Because even the most reliable or stable investment tool does not guarantee you to make profit. It is a safer way to choose different types of investment and to distribute the risk. Because when one type of investment falls, other types of investments increase your portfolio gains and allow you to balance losses.
So how should the distribution of savings be made?
The most common and profitable type of investment is investing in stocks. Most investors, especially new investors, prefer to invest their savings in the stocks of large companies known and trusted. So, what kind of distribution should be made when preparing a portfolio?
There are many different approaches. The most well-known and recommended method is that the investor should remove his/her age from 100 and the result shows the recommended percentage of investments on stocks.
If you are 30 years old, invest 70 percent of your savings on the stock market, if you are 40, 60 percent and etc.
Now, you have determined a rate to invest in stocks. So, what should you do with the rest of your money? Again opinion depends on your risk tolerance. However, recommended next step is to make low-risk investments, which are ideal for balancing the risk from stocks.
For example, you can evaluate options such as government bonds, treasury bills, fixed-income securities or deposit account interest.
3- Consider Investing In Mutual Funds
In the first instance, it may be difficult for you to decide to invest in different types of investment such as stocks and government bonds. In such a case, investing in mutual funds may facilitate your work.
There are many investment fund options available to each investor profile. For example, there are many mutual fund options, ranging from the lowest-risk capital protected mutual funds, to shares of technology companies, to sectoral stock funds, to dividend-oriented funds, or to funds containing precious metals and commodities such as gold. Moreover, there is no need for large sums to buy these funds.
As mutual funds are managed by professional managers, it is only to determine the investment area for the investor, to decide on how much to invest in the field and to make an investment decision by comparing the appropriate funds to keep track of the profit or loss.
You can consider investing in mutual funds in terms of these advantages. Whether you are a new investor or a professional investor, mutual funds are always among the best ways to diversify the portfolio.
4- Don’t Invest With The Money You Have To Spend
There is always something that you should have in mind eveytime: Only invest with your savings. Do not borrow money to invest, or do not use the money that you need to spend in a short time in investing.
If the money you invest in is a money you don’t need, you don’t have to make sudden decisions. Also, you do not have to liquidate your investment when the position is a loss.
5- Continue Learning And Research
You don’t have to walk this road alone. You can learn almost everything by learning from your mistakes and gaining experience, but learning from others is at least simpler, faster, and cheaper.
There are many facts that you can learn from professionals who have transferred their decades of experience to books, posts on the internet, blogs, websites etc.
Here are three of the classic books we can recommend for a good start:
• The Intelligent Investor, Benjamin Graham
• A Random Walk Down Wall Street : Burton G. Malkiel
• Rich Dad, Poor Dad, Robert Kiyosaki