It’s no secret that investing is a lucrative endeavour. Some do it as a side hustle to earn extra cash working from home, while others have converted into full-time investors and day traders.
During the pandemic, more and more people are finding the time to try their hand at investing. A recent BBC article on the matter, reports that popular online brokers gained more than 4.5 million accounts by March of last year. Are you thinking of doing the same?
Growing your wealth starts with the need to be sensible with your purchases. While there is no exact definition for a ‘sensible investment,’ this article will point you in the right direction.
Here are five tips to help you start building your investment portfolio:
1. Set your investment goals
“Investing money is the process of committing resources in a strategic way to accomplish a specific objective.”
― Alan Gotthardt
What do you hope to achieve when you start investing? Are you looking to grow your wealth or to safeguard it? And do you want to see results immediately, or are you willing to let your wealth grow slowly in the long-term?
You must also consider your financial situation, as your goals should be aligned with how much risk you’re willing (or able) to take. Once you’ve set your goals, it should be easier to decide on what to invest in and what strategies work best for you.
2. Do your homework
“Good investments are not pushed, promoted, or sold. We need to uncover them on our own and only after due diligence (careful analysis) buy them.”
― Milan Somborac
It would be unwise to jump into the first investment option you find. When it comes to picking your investments, there are a lot of things you need to take into consideration.
If you’re investing in shares, for example, you can’t stop at knowing how the market works. You also need to learn about what companies would make the best investment choices. The Times’ report on whether to invest in shares cites a couple of options.
Unsurprisingly, it recommends that investors purchase shares from firms that handle online services as they become more and more essential in today’s world. These include fintech, online gaming, and e-commerce companies. The online retailer ASOS and payments company PayPal come to mind as some attractive stocks with great potential for profit.
3. Keep a close eye on the market
“Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard.”
― Warren Buffett
Once you’ve made your first investment-related purchase, you need to keep an eye on market movements. This is so you’re aware of when to buy and sell. By keeping an eye on the market and strong performers, you can maximise your potential earnings.
4. Diversify your portfolio
“Don’t put all your eggs in one basket.”
― Old Proverb
This tip is essential if you want to avoid losses during economic downturns. You should look into the usual options, like shares and real estate, but it’s also worth looking into the supposedly safer options, like gold and certain cryptocurrencies. The idea is to invest in multiple markets, so that there are fewer chances that you’ll suffer if one of them takes a hit.
5. Have an investor’s mindset
“Be sure it is yours before you go into it.”
― Benjamin Graham
Arguably, there are plenty of skills that make up the ‘investor’s mindset,’ but here are two of the most important – self-control and financial know-how.
Self-control is vital for when your emotions get the better of you. Too many good investors fail because they let their anger or panic make a decision, rather than their brain. And with markets of varying levels of volatility, you’re going to need to keep a clear mind and think rational thoughts.
As for financial know-how, an article on The Independent stresses the importance of financial literacy when it comes to money management. A whopping 40% of Britons admit that they lack money management skills, and it’s putting them in a precarious financial position. Given this, it’s vital to know how to allocate your monthly budget. Doing so properly ensures that you have enough for necessities, while also putting a portion into your investments.