Investing can seem like a complex occupation that only a select few dabble in. Knowledge in economics and finance can greatly help an investor succeed, but by all means, a degree in these fields is not necessary to become a successful investor. Technically speaking, anyone can become an investor, however, you will need to be comfortable with taking on risk and doing research to actually see any returns. Investing is certainly not gambling. Your capital gain is not reliant on chance or luck. If you have been reluctant so far to invest, take note that you can start anytime as long as you have the funds. Don’t use any cash you absolutely need to invest. You can start investing with as little as a $100, but only if you can afford to pay for essentials like food, rent, or mortgage.
Your first step in becoming an investor is to secure the funds you can invest towards stocks or assets. When you have it, follow the below advice to take baby steps as an investor:
Choose a Sector You are Comfortable with
As Warrant Buffet has said, invest in things you know. Consider which investments can generate returns. If you are buying stock, you would want to know that the company is profitable and that the product is in demand, however, if you are unfamiliar with what the company does or do not actually understand the product, don’t invest. Buffet certainly practiced what he preached. For a long time, the renowned investor did not dabble in the tech sector. He explicitly stated that he didn’t understand the tech sector enough to actually invest. This practice saved him from the dot-com crash in the nineties. It was only very recently that Buffet invested in a tech company—Apple—buying its stock for long-term keeping. New investors should certainly follow the legend’s advice and invest only in sectors that you can actually comprehend, otherwise, you might not see the warning signs that warrant cutting losses.
Don’t Do What Everyone Else is Doing
New investors are highly vulnerable to the herd mentality. In other words, they follow popular opinion or mirror trades well-known investors publicly make. This is a poor strategy that will put you at risk for scams and bad decisions overall. You should be cautious when rushing to purchase an asset like a stock. Don’t be goaded into purchasing anything via chain emails, sales calls, or similar promotional tactics. Chances are high that you are buying pumped up stock that will soon crash. Instead, carefully research the stocks to buy now rather than follow trends.
Learn How to Research Stocks and Securities
How well do you really know the industries you have invested in? Learning how to conduct research is a very crucial skill all investors must develop. Considering you are an individual investor, you will not have a research team at your disposal, therefore, you will have to start reading the news, reports, and articles about a potential investment on your own. Always conduct a basic background check on the companies or entities you are buying stocks, bonds, and other securities from. For example, make sure the provided address, business registration numbers, and phone numbers are legitimate if the company is unknown. Go to the SEC website and use the provided tools to search for potential reports or complaints previously filed against a company or a stockbroker. Don’t form first-hand opinions about anything. Even if a company seems legitimate, see if there are any factors that might disprove your initial assessment. Being thorough in your research will protect you from scams and bad investments. Last but not least, don’t put all your eggs in one basket. Don’t invest all your money in one sector; instead, diversify to mitigate risk. As you grow your portfolio, you will have to pay attention to fees and diversification strategy as well. Until then, keep the above basics in mind.