People often talk about the lack of information to move from theory to practice when it comes to investing. Are you also on the same boat? Then let us show you the way!
First Know – What Investment Means
To earn money, you go to work, and there are several solutions available to make more money. You can either spend less or, you can make your money work for you – that’s what experts call – investing.
It simply means putting your capital in financial systems, invest in fast growth stocks, property, or a business enterprise with the will to make a profit. That is to say: placing money into a project with the aim of withdrawing a greater sum than the one you invested.
However, today we will just focus on things to know before investing in the share or stock market.
#1 Get Adequate Knowledge before Starting On the Stock Market
Investing cannot be improvised. It is one of the most rewarding financial schemes. However, it is important to keep in mind that specific knowledge is needed to determine the best time to buy and sell the assets you have selected for your portfolio.
The more knowledge you acquire, the better you will be able to make fruitful decisions.
So, do whatever it takes – take opinions from experts, read newspapers and books, attend seminars etc.
#2 Define a Stock Market Investment Strategy
Before investing in the stock market, define an investment strategy. You will rely on this for:
- Your investor profile,
- The duration of the investment,
- Your profit objectives,
- The maximum amount of losses that you can bear.
All of these elements will help you determine an optimal risk-return ratio and guide you in the composition of your stock market portfolio. It allows you to get a good start on the stock market and invest in securities with full knowledge of the facts.
#3 Diversify Your Portfolio
Experts recommend diversifying your portfolio. The modern portfolio allocation they suggest is as follows:
- Up to 70% of securities: bonds, equities, penny stocks.
- Up to 27% real estate.
- Up to 5% private markets: private investments, startups.
- Up to 2% crypto.
Why invest in bonds and penny stocks?
Government bonds are extremely safe investments. Most often with fixed yields, they run over a period of up to 50 years. Bonds are a good hedge against inflation and help build regular income. Like bonds, penny stocks are also safe investments as they typically trade for less than $5 per share. When handled with patience and diligence these stocks offer wonderful returns.
Why real estate?
Each of us will always have to find housing. Stone is a very interesting long-term investment. And it participates in the construction of a flourishing heritage. This is why investing in real estate will always be an important part of the portfolio model.
#4 Apply the Rules of Money Management
If you forget to manage your risk in the stock markets, you will certainly fail. A profitable trader is the one who respects the money management rules:
- During a transaction, some beginners find it normal to jeopardize 15 or 20% of their capital. But the maximum loss per trade allowed is 1 or 2% of your capital.
- Another rule is to withdraw from the market when you have reached a certain number of losing positions on the same day.
#5 Don’t Follow the Herd
Certainly, one should not go against the bearish movements. However, one should be also wary of too good deals:
- The hot stocks that the press constantly talks about.
- Temporary or not yet ripe technological trends. (Who remembers the 3D printers that were supposed to wipe out our factories completely?)
- Exotic financial products that no one really understands.
Overall, when an opportunity seems too obvious or too good, beware.
Final Words:
Books, seminars or newsletters only bring you another’s vision and theory. It will never help you make the right choice in front of your screen when you are alone. To achieve success in stocks, you have to learn from your experience. After all, it is the best way to anchor the lesson in our brain once and for all.
