Investing can feel complicated and overwhelming for a new investor, but it doesn’t have to be. If you’re new to investing, or you feel like you need a bit more help, here are five tips to help you build and maintain a portfolio.
1. Work Off of Clear Objectives and Goals
If you don’t know where you’re going, it will be difficult to make a plan to get there. If you’re investing just because you think you should invest, you might not be able to make the most out of your time and money.
Setting goals helps identify your needs, as well as your own risk tolerance and timeline. Each of these will help you create a customized plan to meet your individual goals.
2. Avoid Rookie Mistakes
New investors often make the same rookie mistakes that can potentially lead to future losses or get in the way of potential growth. Some of those mistakes include:
- Investing while you are deep in debt.
- Investing without a 6-12 month emergency fund.
- Setting unrealistic expectations, especially in short-term investments
- Buying investments that you don’t understand
- Trading too frequently
- Buying or selling based on emotions
- Investing with borrowed money
3. Do Your Research
The stock market has a long history, and researching the past may give you better context to understand the present. Comparing how the market reacts in a unique situation, like a presidential impeachment for example, to the same situation in the past can help you make a reasonable judgement for how the market is likely to react now. Of course, nothing in a capital market can truly be predicted 100%—there is always some risk. Even professional money managers, like those at Fisher Investments, or their research staffs, take current market conditions into account when looking for investment opportunities. The market is always changing and it’s important to know what’s going on in it.
Research is able to show you previous market trends and patterns, which may lead to a better understanding of the market. Research should always be part of your due diligence as an investor.
If you’re only invested with one company or in one industry, you are putting yourself at risk. Diversification makes sure that you don’t put all of your investment eggs in one basket, and can help protect your investment against potential turns in the market.
Diversifying isn’t as simple as buying more stocks in companies; it comes down to making investments in different markets and industries. This can even include different investment types. However, that isn’t enough for diversification. In general, you want to always try to keep at least one part of your portfolio performing when other sections may falter. This can be done by not only diversifying your assets but also by choosing securities in different parts of the economy. This way, no matter what the market is doing, you hopefully have your hand in some portion of the economy that is performing well and making you money.
5. Check On Your Investments
While your investments should be based on long term goals, that does not mean that you should set it and forget it. You need to make sure you are aware of your investments and how they are doing.
This does not mean that you should check your stocks daily—and especially not hourly. Checking your stocks that often has the potential to give you whiplash, as some stocks are volatile. This means that some stocks may grow and increase in profit over time, but they’ll take a very bumpy road to get there. Seeing the dollar amount change on your investment too often can lead to unnecessary stress and emotion-based decisions.
While you shouldn’t stress over your investment daily, you should take the time to periodically check on your portfolio to make sure that it is performing as expected. When you do these check-ins, do so with an attitude of understanding and grace. A stock might look like it is not reaching your initial goals and expectations, but how is it faring against the rest of its industry or even the overall market? You should always try to see the big picture before making any decisions.
Starting out as an investor may feel overwhelming, but with these five simple tips, you can be better prepared and avoid rookie mistakes.