The first half of the year recorded a massive influx of beginners into financial markets— stocks, foreign exchange (forex), and crypto, with everyone looking to diversify their earnings so far. While this is good financial advice, it goes without saying that this same period witnessed one of the most significant price fluxes in history. Thus, understanding how to invest as beginners and manage risks is now important more than ever as we journey through the second half of the year.
Investment is both a science and an art. The best investors mostly understand what ratio of science and art to employ per time, making them manage gains and cut losses effectively. While volatility remains the bane of financial markets, seasoned investors over the years have found ways to maximize profits and avoid scary abysses that tend to eat unsuspecting investors out alive. If you are just starting on this path, here are some traditional investment tips to follow:
Like any enterprise, a requisite understanding of how markets work is required. Investment is not a get-rich-quick scheme. To nobody’s surprise, the highest earners in financial markets are usually the most knowledgeable too. Of course, other factors contribute to success, including time and chance, but you need to pore through books, video courses, and even attend seminars to position yourself on the earners’ wheel. And thankfully, technology has made it easier by providing endless avenues to learn— YouTube, online courses (free and paid), blogs of seasoned investors.
Investment for beginners can be likened to sports. In football (or soccer) for example, teams have managers/coaches to acquire and train players based on their “prime periods.” While one manager may be looking to spend hundreds of millions on young guys to play over a long period, another is probably looking for cheaper deals on older players. The point is, in investment, you are both the manager and the player. Copying someone's investment plan would most likely end in disaster because no two persons have the same investment trait. A 20-year old is likely looking to increase his capital greatly and is open to take dangerous risks, while a 60-year old likely just wants cash for retirement and would not risk losing his hard-earned money. Would you like to retire in twenty years or at 70 years of age? Would you like to grow your portfolio to $100,000? How much do you need to set aside monthly as investment money? Would high-risk, high-return investments do the trick, or are you after more capital security? These are a few questions that would determine how well you will do in investing.
After you have understood what you're investing in and have crafted out a plan, it's essential to consider a long-term plan. Granted, humans mostly have low thresholds for patience, and investment spaces are crowded with noise, rumors, and what-ifs. However, staying calm while waiting for your decisions to come out good is one of the most important skills you will learn. It would be helpful to remember that it’s a journey and alighting until you get to your destination is a bad idea.
The slang “going all-in or go home” is, more often than not, bad financial advice and can leave you “rekt.” In every investment, there will be bull runs and bearish runs, and fear, uncertainty, and doubt (FUD) are ever-present. Even though your investment choices may be right, it would be prudent to have some cash in reserve should your choice go the other way.
It's very difficult to predict the direction the market will move towards, but certainly, the market will always move (because of volatility). What would ease your investment journey is understanding when to be firm in your approach and when to be flexible. In crypto and stock markets, for example, there are two major ways people buy— lumps sums and dollar-cost averaging.
When playing a long-term and safe, Dollar-cost Averaging is the better option while buying in lumps sums is usually considered for short-term investments.
Above all, diversification is an important tactic used in investing, and knowing when to switch is a hallmark of a great investor.
Rome wasn't built in a day, and neither will your portfolio. But as you lay brick upon another, trust your guts to lead you. Investment is only daunting when you do not follow the rules. Once the rules are followed, the investment journey will likely turn out to be the most appealing and intriguing endeavor you'll ever embark on.