What To Consider Before Investing as a Beginner
Draw A Personal Financial Plan
Making any investing decision, be calm, Relax, sit down, and take a look at your current financial situation- especially if you haven’t planned your finance before.
What is Personal Finance?
Investopedia defines it as ” a term that covers managing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning.”
A guaranteed way to be a successful investor is planning out your goals and risk tolerance, which can be done on your own or with the help of a professional finance manager.
There is no assurance, that your investment will make money, but with an intelligent financial plan about saving and investing following through, you should gain financial security over the years.
Make A Safe Zone For Managing Your Risk
Every possible way to make money involves some degree of risk even investing. If you intend to purchase stocks, bonds, or mutual funds, etc. It’s very important to understand before you invest, the probability you could lose some or all of your money.
What is Risk Management?
Wikipedia defines “Risk management is the identification, evaluation, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability or impact of unfortunate events”
Without Risk management, you could lose your principal, i.e. the amount you’ve invested even if you purchase your investments through a bank.
The reward for taking on any investment, with risk management is the potential for a greater investment return.
As a simple example, a person with a long-term financial goal is most likely to make more cash by carefully investing in assets with high risk (stocks or bonds) rather than investments in assets with low risk, like cash equivalents. Which may be categories for a short-term financial goal. The main concern for investing in cash equivalents is inflation risk.
Investing in Different Mix Appropriately
By investing in asset categories that move up and down under various market conditions within a portfolio, an investor can help protect himself against significant losses.
Past performance, the returns of the three major asset categories (stocks, bonds, and cash, ) haven’t moved up and down at the same time, therefore the Market conditions that cause one category to raise often cause another category to have an average or bad returns.
What is a Portfolio?
Wikipedia defines it in the financial term “as a collection of investments held by an investment company, hedge a fund, financial institution or individual.”
By investing in different asset categories, you reduce the risk of losing money and your portfolio’s overall investment returns will be safe. For example, If one asset category investment returns drop, you can counteract your loss in that asset category with improved investment returns in another asset category.
Also, the implementation of an investment strategy that attempts to balance risk versus reward is important because it has a major impact on whether you will meet your financial goal. If you don’t include enough risk with management in your portfolio, your investments might not earn enough return to reach your target.
Diversify Your Investments
One of the most important things in investing and managing risk is to diversify your investments, i.e. don’t put all your eggs in one basket.
By choosing the appropriate group of investments within an asset category, you might limit your risk, losses, and reduce the change of investment returns without sacrificing too much of your profit.
Having An Emergency Fund
What is an emergency fund?
Wikipedia defines it as “a personal budget set aside as a financial safety net for future mishaps or unexpected expenses.”
This method is used Mostly by smart investors to put away enough money in savings to cover an emergency.
Pay Off High-interest Debt.
With every investment strategy, no strategy is best than paying off all high-interest debt you may have. Under any market circumstances, the wisest thing is to pay off the high-interest debt balance in full ASAP.
Use DCA (Dollar Cost Averaging)
This is an investment strategy, Dollar-cost averaging is a method of spreading out your invested assets or fund purchases, buying at regular intervals and in roughly equal amounts. When carryout properly, it has significant benefits on your portfolio, i.e. dollar-cost averaging “smooth’s” your purchase price over time and helps ensure that you’re not wasting all your cash in at a high point for prices.
Dollar-cost averaging can mostly be powerful in a bearish market, allowing you to buy the lot, or purchase stock at low points even when most investors are too afraid to buy.
Following a strategy like this, means you will be investing when the market is down, and that’s when investors make the most.
Rebalancing is the process whereby the investor restores its portfolio to its original targeted plan. By doing this, you have ensured that your portfolio does not overemphasize one or more asset categories, and return your portfolio to a comfortable level of risk.
Rebalancing portfolios can be done based on either by calendar or by investments. Financial experts recommend investors to rebalance their portfolios regularly.
The advantage of this method:
- Ensure better risk management, and establish your portfolio isn’t dependent on the success or failure of an asset or investment.
- A risk-minimizing strategy as an investor allows you to check your investment with your goals (periodically rebalance your portfolio).
- In case your risk tolerance changes, you can re-adjust the weight of the asset category in your portfolio by diversifying a new asset allocation.
Avoid Cases That Might Lead To fraud
Technically avoid scammer. Online Scammer read the news too. Mostly, they’ll use popular news or forthcoming event news to lure potential investors and make their proposals sound very legitimate.
We recommend you ask a question (e.g. certification etc.) and do in-depth research on such opportunities, don’t forget to contact governmental agencies to source out the detail of the company.
Always take your time to read various reviews, complain online, and talk to trusted friends and family members before investing.