Beginning investors who have made the decision to start building an investment portfolio are clearly at a disadvantage: as is the case with job-seekers, who encounter employers wanting to hire individuals with experience (yet experience can only be gained if one has already been hired by an employer), investors wanting to make a profit lack the foundation needed to make informed investment decisions, yet can only lay that foundation if they commit their funds. The choice of investment vehicles can be overwhelming, and is complicated by tax implications and by the need to make a host of further fundamental investment decisions such as whether the investor prefers to invest for value, or for growth; whether the investor is more comfortable with a short-term or a long-term profile; what type of appetite the investor has for risk; and many more such decisions that the investor must make if he is to have success. Taken together, these choices comprise the investor’s investment profile…but how can a beginning investor define their profile if, by definition, they remain unaware of its components and implications?
Share investment tips for beginners
Sound research is the basis of successful investing. For the beginner, “research” may have a different meaning than it will for a sophisticated investor; a beginner will need to research not only the markets and their workings, but also the target companies in which they may want to invest, and the brokerage firms with whom they might want to open their account in order to have their trades executed. The scope of this research may appear daunting, but plodding through it is a sine qua non if the investor is to make informed, profitable choices. To research the markets and become familiar with their workings, a beginning investor should engage in some paper trades: pick several stocks that you think you might be interested in, and follow their daily changes in price. Note whether your pick would have earned you a net gain, or caused you a net loss, had you invested real funds into it. Hone your trading skills as you study the different markets to determine whether you are comfortable taking on the higher level of risk associated with trading in penny stocks on the OTC markets and/or the pink sheets, or whether your appetite for risk is more conservative, leading you to focus your efforts on companies whose stock is traded on the NASDAQ or higher exchanges. Educate yourself in how to read such critical corporate publications as annual reports and the various SEC filings, so that you understand the meaning of the information contained therein: these documents provide you with a picture of the company’s health and prospects, and contain fundamental ratios that allow you to compare prospective investment targets against each other on an apples-to-apples basis. Read up on personal finance, investment strategies and taxation to help you understand the nuances of each and refine whether you are investing for the short or the long term.
Invest in what you know. If you have experience or expertise in a particular industry or business segment, you may want to begin your research by looking into companies actively operating in it; if you have no particular industry expertise, you may want to follow the lead of any of the successful mutual funds generally adhering to your same risk profile by looking into the companies whose shares they regularly purchase.
Take an honest look at your finances. Never invest more than you can afford to lose, and never forget that all investors experience occasional losses. Decide how much you have available to invest, and do not forget to allow for the costs associated with investing. Although different brokerage firms will charge you different fees for their services, all brokerages firms will charge you something, and you should be certain that you have a complete and accurate understanding of these fees before agreeing to open an account with any particular brokerage firm. Annual and quarterly fees imposed, if any, should be included in your overall cost calculations together with any additional fees or charges which you might need to take into consideration, such as account maintenance fees, inactivity fees, or per-trade fees; some brokerages even charge a premium for executing penny stock trades. Lastly, be sure that you understand whether the brokerage will insist that you maintain a certain minimum account balance at all times, and factor this into your total costs, before deciding where you would like to maintain your trading account. Always ensure that your trading activities do not encroach into your so-called “margin of safety”.
Maintain realistic expectations: if you think that you are going to succeed in tripling or quadrupling your investment capital in your first month of trading, know now that you will not. Like all investors, you will have certain winners and certain losers in your portfolio, and you must manage these holdings—buying or selling based on performance—if you are to maximize your profits. Be actively aware of your portfolio’s earning at all times, and, having decided on a trading strategy, stick to it—but remain capable of correcting yourself if the market should take a turn against you. Diversify your portfolio by buying into a variety of equities with differing risk levels, differing returns and differing maturities; the more diversified your portfolio, the more you have provided for a natural hedge against market downturns, poor performance and inflation. Allocate your assets between different industries and different instruments.
Investing tips for beginners
Learn how to use tools to assist you in making your investment decisions. Charts can be very useful to you, because they summarize performance in a manner that is compact, visual, and easily understood. They can be created and customized by you to highlight or summarize whichever data you deem to be most important in making your investment decision, and are indispensable to most investors. If you have opened your account with a brokerage firm that provides analyst reports and industry or market data summaries, make use of their availability to expand your microeconomic understanding of companies and their industry trends. Become a member of an investor forum to interact with other company shareholders and familiarize yourself with their attitude toward the company and how satisfied they may be with company performance, policy and management. Make productive use of all of the resources available to you.
If you are interested in investing in the stock market but do not feel that you can either perform the necessary research or manage your portfolio and your picks on your own, there are other, more passive ways to invest. If your employer offers a 401K plan, you should participate in it—particularly if your employer makes matching contributions. You can also invest in stock through making contributions to your IRA, regardless of which type of IRA you may have. There’s even an acceptable option for those investors who do not want to have to make any investment-related decisions whatsoever: put your money into a mutual fund, and let the fund managers do the hard work for you. Whatever your approach, the sooner you begin investing, the sooner you’ll no longer be a beginner.
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