8 Tips for First-Time Investors
Stocks and bonds can be intimidating things, especially for those without a formal financial background. Here are just eight tips for the first-time investor that will shed some light on the enigmatic practice.
1. Establish Goals
What are you hoping to achieve with your investment pursuits? Do you need money by the end of the year to start a business, or are you thinking long-term for things like your child’s college fund? Knowing your goals in advance will help you make better decisions about risk assessments and payoff options.
2. Save Your Money
While some firms and brokers will allow you to make small monthly payments, this isn’t the kind of money that’s going to pay off your mortgage. If you’re serious about bringing home the bacon through your investments, you’ll need a good amount of capital upfront, and it should be money you can afford to lose.
3. Talk to a Tax Lawyer Before Proceeding
You may or may not have to pay capital gains tax on your investment income. You probably will have to pay dividends. There are a lot of tax considerations to keep in mind before you start tossing cash at a good-looking investment opportunity, so sit down with a lawyer and iron out the details before you let go of your money.
4. Know the Industry
If you don’t know what compound growth rates are, it’s time to do some homework. Learn the lingo; look up the “who’s who” of the financial world; teach yourself how to recognize and act upon market trends. Subscribe to newsletters. Read things like John Hailer tweets and NatixisGlobalAM updates.
5. Stick to What You Know
Don’t invest in a jewelry company if you have no idea how gold is mined or how diamonds are authenticated. Don’t buy into a fast food franchise if you’ve never worked in a restaurant. Keep your money in an industry that you can understand and predict, especially when you’re still figuring things out with your first investment ventures.
6. Decide on an Investment Strategy
Will you be trading in stocks, bonds or shares? Are you interested in fixed-interest investments or something else? What’s your policy on commodities? Don’t make any long-term financial decisions before you decide on the basics of how and where you’ll be spending your money.
7. Join an Investment Club
Investment clubs are a great way to get your feet wet without jumping headfirst into the pool. Not only will you be among like-minded people for advice, discussion and even loans, but if you make mistakes during your first investment attempts, the failure will be diluted among many instead of few.
First-time investors are often tempted to put all their eggs in one basket. Resist this urge! Even as a beginner, it’s important to diversify your investment portfolio so you won’t lose everything if a single company goes under. Your investment career will be over before it even begins if you make one bad decision with your entire savings on the line.
These are just eight things to keep in mind when investing for the first time. Whether you’re trading in commercial steel or putting money into a makeup brand, preparation is the key to making smart investment decisions and bringing home the big bucks.