Learning How to Make Wise Investments — 7 Ways to Go
If you really want to acquire wealth, you need to do more than just earn money. You may tell yourself — this is not a good time to talk about investments. Truth be told, there’s no good time to talk about it. You just need to be disciplined enough to save in order to invest.
Oh, you have the cash already? Great!
Getting to know investing seems pretty scary, but it’s really easier than you think. Even better, you can start anytime no matter how much you have saved. I understand that doing anything for the first time can be pretty overwhelming, especially when it involves money and so much information on the internet showing you how to go about it. That’s why this guide has been written to show you how to invest smartly and make the right investment choice.
Before we go any further, let me quickly add that investing is not a medium to make quick money. Instead, it is a way to compound wealth over a period of time. The good thing about investing is that you can start even with a small sum of money. All you need is patience and selecting the right investment. With that cleared, let’s get started!
Have the right mindset
The difference between a good investor and one who makes bad investment decisions is the mindset. Having the right mindset allows you to make favorable decisions concerning your investments. More often than not, we tend to believe what we feel and think have little or no effect on our investments. Whereas that is totally untrue.
Although we can’t control the market, our mindset has a huge influence on how we react to whatever happens with the market or our portfolio. As an investor, the greatest enemy to your investment is fear. You lose a sense of good judgment when fear or panic gets in the mix. Fear could make you get low returns on investments, especially during market crash. That said, being overconfident in your abilities can also be really dangerous. Don’t ignore the stats and take huge risks in the hopes that your investing skills will save you. Make sure you always check your growing confidence and always have a healthy scepticism as a genius investor.
Do you need any help investing?
If you already have ideas on what and how to invest, then you may not necessarily need help walking that path. On the other hand, if you belong to the second category that answered No, you should get help from a professional (Robo-advisor) before making any investment. These online advisers, build and manage a client’s investment through a computer algorithm and advance software. They offer automatic rebalancing, tax optimization, and create access to human help when needed. Even better, they are quite affordable to hire.
Now you have built the right mindset and got ideas on what and how to invest, it is essential to learn the dire difference between long-term and short-term investments.
A long-term investment is the most beneficial form of investing. Unlike short-term investing that involves trading in and out of stocks within a short period of time, long-term investments can last up to 10 or even 20 years. With long-term investment, risks associated with price-drops and short-term volatility is reduced drastically. Learn to study the market to know your best investment type before
The investment account is non-negotiable
To buy most types of stocks or bonds, opening an investment account is very important. Just like we have our regular bank account for different purposes, there are also different investment accounts. There are investment retirement accounts SIPP and general-purpose investment accounts.
When investing for other goals, you can open a taxable or college saving account. Taxable accounts, aka non-retirement accounts, are much more flexible compared to retirement accounts. There are no rules to contributions, no special tax benefits, and you can withdraw your money at any point in time.
Note: Like retirement accounts, college accounts also get special tax perks for saving for college.
Open a broker account
This is yet another important investments tip to keep in mind. A brokerage account is the quickest and least expensive account to obtain. It is a self-management account that allows you to buy and sell different investments like stocks, bonds, funds, etc. An all-rounder! More so, you can open your personal retirement account.
Here, computers are used to build and manage a client’s portfolio based on the client’s risk tolerance and goal. They are ideal for investors that prefer to hands-off investments. But you’ll have to subscribe for management fee annually which is usually around 0.25% to 0.50%.
Set a budget
Knowing how to invest basically involves asking where to invest money. This depends on your goals and your willingness to take risks. You can decide to invest in:
- Stocks — you buy shares from companies that have a high chance to increase value in the future.
- Bonds — these are fixed-income investments where interest payments are made to investors. They lend your money to a company or government to finance projects or pay off debts.
- You can also invest in mutual funds or real estate.
After deciding on what to invest in, it is time to ask yourself how much you are willing to invest. When investing in stocks, for example, the amount of money you spend depends on how expensive the shares are. I would like to quickly add that investing in stocks and stock funds, while lucrative, is best left to those who have a high-risk tolerance.
For those with a low-risk tolerance, focus more on bonds, as they tend to be more stable.
Bonus Tip: Building a diversified portfolio of individual stocks and bonds across a variety of industries is very essential to become a successful investor.
As a beginner, the game of investing can be pretty challenging. The risks involved don’t make it any easier. I hope this guide helps you to navigate smoothly through this lucrative yet overwhelming world.
Thanks for reading!
I hope you picked a few helpful tips from our list. Do not hesitate to let us know what you think in the comment section below.
Are you currently struggling with investing? What tips have worked for you so far?
Definitely looking forward to hearing from you. Remember to share with your friends and family and on social media too. Also, subscribe to my blog for more tips and related topics. I post practical tips every week. I’m positive you will like my ebooks too. I’m also launching my very first investing course soon. Stay tuned!
Recommended for further reading:
- The Definitive Book on Value Investing
- A Plain English Guide to Thinking Globally and Investing Wisely
- Learn how to make more money and transform your life
- The Definitive Companion to Investment and the Financial Markets
- Master Profit Statements, Understand Bookkeeping & Accounting, Prepare Budgets & Forecasts