Dipping Your Toes Into Investment
Saving money is a hallmark of good financial planning. Most people are consistent with squirreling away some money for a rainy day, but many don’t make the most of those dollars. Whether it’s a fear of losing money, a lack of information about investments, or simply a lack of time to go through the process, they are missing out on some very significant financial gains.
Taking your investment program beyond simple passbook accounts and certificates of deposit requires some education and some time, but over the long run, it will most certainly pay for itself. Your best step is to talk to a qualified advisor before doing anything, but you can start here to prime yourself for that conversation.
Find Good Investments
A good advisor will help you choose where to invest your money, but that can start from your own instincts and ideas. Spend some time watching the market for a while and see what some high-profile companies are doing, then season that with your own knowledge as a consumer.
A good example is the GoPro company, listed at NASDAQ:GPRO. Ten years ago, no one had any idea that body-mounted video cameras and the company’s other products would sell the way they do, but if your own experience–let’s say as a kayaker or mountain climber–introduced you to the product in its earliest days, you might have seen potential that would lead you to talk it over with your broker.
Investment professionals know the ins and outs of the business side, but you as a consumer are one of the people who ultimately drives the trends that they analyze. If it passes your eyeball test, there might be something for your broker to examine.
Diversify
Of course, single investments can make you some good earnings. The market can have corrections, burst bubbles, downturns, and all the other negative events that will affect all investments, and no amount of diversification will insulate you from that.
But individual companies have their ups and downs, some of which are fairly isolated within their respective industries. Bad management decisions, new government regulations, or failed products can create a real ding in one of your stocks, but if it’s just one part of your portfolio, the impact will be buffered.
Think of your investments as a grocery list. If you spend $120 on your usual items this week, you may be upset to see a $1 jump in the price of a couple items next week. But if a number of other items were cheaper due to sales or coupons, you may still get home for around $120. That’s the benefit of diversification, and it’s critical to investment success.
Be Patient
Forget day trading. That’s for the experts, the people who are willing to gamble their fortunes on the whims of a highly speculative world. It’s not for people who are working to ensure their financial security 20 or 30 years from now.
Being in a hurry for returns is a major misstep for an investor. Impatience can lead to bad decisions that can drastically undercut your gains.
Excuse the cliche, but investing is a marathon, not a sprint. If you panic and sell after the market takes a big dip, you are making the losses real. If you hold those stocks, the loss is only on paper. To understand this, you must understand the difference between stock value and actual money. Stock values go up and down by the minute, but they don’t become actual money until you sell.
Who cares if your portfolio lost 12% this week? It will rebound over the coming weeks and months. Your house has probably done the same thing, but you didn’t sell it just because its value went down. There has never been a 20-year period where the market didn’t go up, so selling while it’s down is reckless and destructive.
Investing is a great idea. It will help you grow your money and see the maximum fruit of your labors. And stocks are only scary when you make bad advice or take bad decisions. Before you get started, educate yourself on how to avoid those missteps and you’ll do very well.
