Despite all the rags to riches stories you see on Facebook and Instagram, successful investors didn’t achieve their success overnight. Investing is a long game and there are plenty of opportunities to fail along the way. It is similar to chess in the sense that it takes minutes to learn the rules, but a lifetime to master. One other thing to forget about is so-called instincts. When people talk about them, they are actually referring to years’ worth of experience and knowledge master investors have accumulated. That allows them to make decisions amateurs refer to as gut calls. In fact, their knowledge of the markets and forces that influence them is so deep that people from the outside can’t even begin to guess their next move. Fortunately, there is enough info about their actions to be able to create a list of starting tips to get you going.
Before you dive in, there are some key points you need to understand. George Soros may have been able to earn a billion dollars on a single gambit when he shortened the pound in the 1990s, but that was pretty much a one-time event. Even Soros failed to replicate it. The best course to chart is to accumulate winnings over a series of less lucrative, but more secure trades. The exact time frame will depend on you and your personal goals. Your age will play a major factor in this, as it will determine your retirement plan. Of course, if you are in your twenties and plan to retire by 40, you will need a more aggressive plan. That would entail far riskier trades, with larger payoffs. Even in that case, we are still talking about 15 to 20 years. That is why you have to think of investing as a long-term operation.
This can’t be overstated. Many people parrot Warren Buffet’s mantra:” Never invest in a business you cannot understand,” but unfortunately, not enough practice. Investing on a tip from a friend that you trust may bring you a tidy profit, but it is not a viable strategy in the long run. Eventually, you will have to start making investment decisions on your own, and that requires intimate knowledge of the market. That is why many people tend to specialize in a certain field. They focus on the thing they understand and rarely, if ever, step out of their lane. Thankfully, we live in a digital age where thousands of sources of vital information are just a few mouse clicks away. There is little you can’t learn or find out about a potential investment in today’s world.
As the ugly truth of the consequences of human development on our planet becomes better understood, a new type of company has emerged. They focus on the ethical side of the business, trying to strike a balance between profits and the environment. Of course, that is not always possible and many companies are green in name only. All investors, not just ethical ones, should be wary of such claims. That being said, there is plenty of money to be made in environment-friendly trading. The best eco-friendly stocks are the ones that represent companies that offer new solutions to our climate change problems. Thanks to the rise of new technologies and ideas, there are many of them that have the potential to change the world. The trick is picking the right ones.
Diversify, Diversify, Diversify
Did we mention diversify? Never keep your eggs in one basket. When bad things happen (notice that we say when, not if), a diversified portfolio may be the only thing standing between you and financial ruin. Crisis and market runs are more often than not confined to a single sector, with others suffering far less damage. Also, they can be limited geographically, so having a healthy mix of domestic and foreign investments is always a good idea. Finally, include different classes in your portfolio. Have a mix of bonds, stocks, exchange-traded funds, and even commodities represented in your investments. In the short run, this may affect your bottom line negatively, but in the long run, it is absolutely vital. A diverse portfolio ensures that at least some parts of your investments will survive in the worst-case scenario.
Review Your Portfolio Regularly
That doesn’t mean spending hours every day tracking your investments. Once or twice a year take a good look at your portfolio and see which investments are performing well and which ones need to be replaced. Six months or a year are a good time period to even out occasional fluctuations and spot trends. A good review should tell you all you need to know about your money and whether it is working for you or is it simply stagnating or even causing you a loss. Don’t be afraid to make changes. Even if you have been carrying a position for years, as soon as it is underperforming, dump it and replace it with something better. There is no place for sentiment in investing.
One of the best pieces of advice anyone can give you is don’t panic. There comes a time to dump your investment and cut your losses, but if you let your fears get the best of you, it will spell disaster for your portfolio. Panic is perhaps the biggest reason why so many inexperienced investors lose money. If you react to the slightest market fluctuations by selling all your positions, not only will you constantly be in red, but you will miss any chance of creating a safe retirement fund. Markets move up and down every day and sometimes all you need is a little patience to survive. If you are not sure, ask a trusted and knowledgeable source for advice or study the problem before making a decision.