Getting into investing is an exciting experience but it can be overwhelming at first. There’s a lot to learn. The competition is fierce and, while there’s the potential for making very good money, it’s all too easy to lose some by making simple mistakes. How should you go about finding your feet? What are they key things you need to know and do in order to get established and have a good chance of success?
Define your goals
Many people get into trading without having a clear idea of what they want to get out of it. What are your priorities? Do you want to make as much money as you can in a short space of time? Do you want to establish long-term funds that will help pay for your retirement or support your children through university? Perhaps you just want to make sure the value of your savings doesn’t decline due to inflation, or perhaps you want to use your investments to support social or environmental movements in industry. Whatever it is, this will define what you do with your money.
Understand your options
There are many different assets out there in which to invest and many different companies and platforms you could invest through. Don’t go with the first thing you see – explore, do your research and figure out what’s likely to work for you. Read the best broker tips from LearnCFDs and consider the pros and cons of bonds, stocks and shares, mutual funds, forex and all the other possibilities out there. Identify the industries where your pre-existing knowledge could come in handy and learn about how different asset classes can support one another.
Formulate a plan
All successful traders have a plan. It should detail how much risk you can tolerate, how much you intend to invest each month, and how long you plan to invest for overall (which could, if you want to leave a fund for your heirs, be as long as you live). It might also include guidelines on how many trades you intend to open or close in a given period, and the formulae you will use to determine whether or not a particular investment is right for you. Though these may change over time as you learn more, it’s important to use coherent strategies and not just chance it on whatever seems good at the time.
Diversify your assets
Diversification is important in an investment portfolio because it reduces your vulnerability. Long-term, slow-ripening assets can balance out risk while shorter term, riskier assets deliver some immediate income. Spreading assets across multiple sectors or even multiple countries means you’re less likely to be severely affected by economic downturns. There’s a flip side to that, however. Diversify too much and you won’t be able to keep up with what’s going on in the different areas in which you’ve invested. You need to strike the right balance; something that’s subtly different for everyone.
In order to succeed as a trader, you need to understand your own strengths and weaknesses. Fantasy trading is a great way to explore different types of trading without putting your money at risk and it can help you work out what you’re best at. If you know that you’re impulsive and have a record of getting into trouble in that way, stay away from the temptations of day trading. If you’re a nervous person and struggle with finding the confidence to make decisions, give yourself a small push and don’t just leave all your money in government bonds. There’s a healthy middle ground.
Never stop learning
No investor ever learns all there is to know about investing. To do so would take many lifetimes and even then, the market would be undergoing change. As a new investor, you’ll have a lot to learn, and you shouldn’t be tempted to take on anything you don’t understand, but even when you’ve found your feet you should take every opportunity to learn more. Where older, more established investors tend to be weak is in receptiveness to change. New investors are more likely to look at the market as it is rather than as they expect it to be, but if you stay sharp, you can make sure you retain that perspective.
Investing is not, generally speaking, a way to get rich quick. It requires time, patience and hard work. If you’re prepared for that, however, you could find that it works out very well for you. Within a year or two you’ll have a good sense of how the markets work and how to manoeuvre within them. Then you can really start to reap the rewards.