As the world of finance becomes increasingly digital, a new generation of investors is being created. Thanks to technologies, such as online brokerage platforms and third-party resources that monitor asset prices, today’s investor is more independent. However, that does not mean investing does not bear risk anymore. On the contrary, one could argue that it can actually be even riskier, given the new market players and factors that move prices. Here’s five best practices to help the novice investor.
Manage Your Risk:
If you’re going to take anything out of this article, let it be this tip. Successful investing is all about risk management. A common mistake that beginners and even experienced investors make from time to time is chasing after profits first and only controlling losses second. Whenever you buy an asset, make sure you have a predefined stop loss or price level wherein your broker automatically closes and liquidates the position.
Master One Asset First:
Each asset has varying factors that move its prices. A company’s stock may be susceptible to its quarterly earnings reports but not to the statements released by central bankers. On the other hand, worsening geopolitical turmoil may move currency pairs but not affect stock exchanges. And while people say you should diversify your investments, you should first learn and master one asset before moving onto the next.
Look at the Big Picture:
A common misconception is that investing is a fast-paced, get-rich-quick scheme that can transform your life overnight. When people hear about investing, they think of investment bankers earning a fat bonus check from making their company millions of dollars or a self-taught trader working from home with four to six screens all brightly blinking from changing asset prices. However, in the long run, it all boils down to finding value. Even a one percent gain on your investments is a modest return.
Don’t Just Blindly Follow the Herd:
While there is safety in numbers, it can be financially detrimental to just take a neighbor’s financial advice or a coworker’s stock recommendations without putting in the time and effort yourself to research these assets. Online publications and live interviews on business channels can easily sound compelling to heed and follow, but bear in mind that these so-called experts and pundits are no better at predicting future asset prices than someone who just started reading charts today. Do your own market research, verify that statements made by key figures are indeed legitimate, and use historical patterns as a guideline for making future investment picks.
Don’t Look at Your Account Every Hour:
Perhaps one of the simplest yet most impactful habits of succeeding in investing is to not look at your portfolio by the hour. It only causes unnecessary confusion, stress, and the temptation to make hasty and illogical investment decisions.
Final Thoughts:
Investing doesn’t require you to be the smartest or wealthiest. It’s all about following through with your plan, practicing the right daily habits, being patient, and continuously learning the financial markets.
Edward Schinik is the CEO of Yorkville Advisors.
