Want to start investing but have no idea where to start? Many new investors make mistakes frequently due to their inexperience and lack of knowledge, ending up losing money. But don’t worry, in this article we highlight 7 investment golden rules for beginners, so that you can do it in an informed and convinced way of what you are doing, avoiding some basic mistakes.
Don’t Believe Everything You Read
Newspapers can only publish reports after market prices have gone up or down. If you want to make money on your investment, you need to act before the market gets hot, as the share price is likely to peak given the great publicity and hype surrounding this investment. Remember: you should never invest blindly or you could end up paying prohibitive prices. There is no guarantee that prices will continue to rise and you may have to sell at prices well below what you bought.
Raise The Return Objective
A growth in value does not necessarily imply a successful investment, as a high rate of inflation would compensate for the growth in value. If the return on investment is lower than the inflation rate (the inflation rate in Portugal in September 2022 was 9.820%) you would still be losing money. You can opt for mutual funds, as well as insurance clauses, so that you can keep up with inflation and get a higher return on investment.
Distribute The Risk
It would be better for you to make the investment in a variety of sectors and companies, such as a healthcare company, a transport company or a real estate company. With low correlation between these sectors, it can effectively diversify investment risks. As it is very unlikely that all of your investments will go bad at the same time, a downturn in one sector will not adversely affect your portfolio’s performance. To have a diversified portfolio, you can choose to invest in an index fund or hire a financial advisor in order to build a portfolio with a greater variety of investments, with lower risks.
Don’t Invest In Entities You Don’t Know
You should not invest in industries or companies that you are not familiar with. Avoid investing in companies about which you have no idea about their operation and business area. In the same vein, if you don’t know your market well and its products and raw materials, it is likely that you will find it difficult to understand that the drop in oil prices could have an impact on finances and companies in coal mines, for example.
It is impossible to adopt an investment strategy passively with the frequent fluctuations in the markets. It will also not be able to make decisions in a timely manner if it is not properly informed of the current market situation.
Furthermore, the inability to understand investi ng can create serious problems in your financial plan. For example, if you understand the guaranteed and non-guaranteed returns of capital insurance, the odds dictate that you could earn less than what you initially invested.
Stabilize Your Debts First
If you have accumulated huge debts on your credit card or if you have taken out a loan with a very high interest rate, you should get rid of all debt before investing. You might think you can pay off debt with the earnings generated by your investment, but the chances are slim as it is incredibly difficult for most new investors to earn returns of at least 9%.
Plus, with high interest rates on credit cards, you might be surprised at the interest cost before you earn enough to cover debt. You can try joining a consolidated credit solution , with which you can combine all your credit card debts into just one loan, reducing interest expenses.
Invest And Save At The Same Time
If you need to, it’s not easy to withdraw money from a mutual fund or structured deposit overnight, as you are likely to make a substantial loss (even if you manage to withdraw that amount).
It is prudent, therefore, to add some savings for a less good day. Illiquid goods such as luxury watches and jewelery should not be counted in your savings as they are difficult to sell immediately in times of emergency.
Therefore, it would be better if you managed to have savings and an investment fund at the same time. If you don’t have enough money to create and maintain these two types of funds, try to add at least 6 months of your salary before starting any investment.
Establish A 2-Week Decision-Making Period
Take a step back if you make a big loss on an investment. Many people cannot keep calm and tend to double their investment in order to recoup what they lost. This is not just common for new investors, it is equally true for experienced traders and fund managers. They panic and tend to jump at any opportunity to recover what they have lost.
That’s why we advise you to take a step back, think carefully and weigh the pros and cons before making any decision. Review your portfolio and think carefully before making the next decision.