Are you looking to invest your money? Then you’re going to need to learn about investing first. You can’t just jump straight in and start buying stocks and shares at random. Here are five tips for new investors.
Establish a plan
Before you do anything else, you need to sit down and work out exactly what your overall strategy in investing is going to be. This will involve defining how much risk you are prepared to take with your money (that is, how much of it you’re willing to lose). It will also require that you establish some priorities – for instance, are you more interested in making money or preserving capital? Finally, defining an objective for your investments will help you exercise personal discipline. Decide what kind of growth is more important to you and how much risk you are willing to take to achieve that goal.
Understand risk and reward
You need to grasp the relationship between risk and reward. You can’t make money without taking a bit of risk, but you can certainly lose your capital if you take too much. The trick is finding the right balance. A good investment strategy will strike this balance in some way – it might be to invest for growth with a view to preserving capital, or to invest for preservation but take on a little extra risk to increase your gains.
Read the news
Investing is all about understanding the economic environment in which you are investing. You don’t need to read every single economic news article that appears online or on television, but it’s definitely worth reading up on the types of stories that interest you (and your investments) most. For example, you should visit the site that provides information on the industries that have thrived during the pandemic.
Be tax efficient from the start
Tax is another thing that you should bear in mind when you start thinking about your investments. The government takes a percentage of everything you earn, and if you want to maximize the return on your money (rather than leave it for them), then paying as little tax as possible will be essential. Tax can eat into investment returns quite significantly, so you need to be aware of how it will affect any given investment. For instance, if you invest in a tax-efficient savings account, then this money is likely to grow slower than an equivalent lump sum in a standard savings account – but at the end of the day, it’s better for your bank balance.
Diversify your portfolio
Don’t put all your eggs in one basket. To be on the safe side, you should try to have a diversified portfolio that contains riskier investments (such as shares) and less risky ones (such as bonds). This will allow you to balance the highs and lows of different industries – for instance, if housing is doing well, then shares might not be doing so well. However, you can balance the situation by investing in a new share issue that a strong housing sector has buoyed up. A diversified portfolio will also make things a little more difficult for any unscrupulous parties who are hoping to target your investments directly – if they want to steal from you, they will need to steal from fifty people rather than just one.