Investing is popular choice among people who have some capital available. It can be done with small amounts of cash or large amounts, and can be ideal to help with a little extra income that will most certainly beat the bank. Let’s look at 5 things to know about investing before you start.
1) Be patient
A key aspect of investing is patience. “Time in the market beats timing the market” has always been a good saying to go by as the market has always made a new high. So be patient with what you invest in as there are many great choices for you.
2) What to invest in
What are some of these choices? One option is investing in companies that have a large market cap, over $10B. This will reduce volatility in your investment which will make it easier to start out. Also, these companies are very well established and have good foundations, making them more suitable to face challenges in the future. Another option are ETFs (exchange-traded funds). These can be based on the market, such as the S&P500 (SPY) or Nasdaq (NDAQ). You can also invest in an ETF that focuses on a sector. Popular ones are Vanguard Information Technology ETF (VGT) or Energy Select Sector SPDR ETF (XLE).
3) Buy low, sell high
“Buy low, sell high” is something I am sure we have all heard at one point. And to breakdown the success of investing and trading, it couldn’t be more simple. But it is easy to get caught buying when everyone is talking about a stock and it is rising. It is even easier to get caught in the fear of the market and sell in panic. Although “time in the markets beats timing the markets”, timing still has an important role. Look out for big sell offs in the market when you are looking to buy. Buyers will come back in and you will then have a good average. As said before, the market has always made a new high.
4) Compound through dividends
A good way to help your investment grow is by compounding your money. One way to do this is by looking for stocks that pay dividends. This will provide you with passive income that you can reinvest into more shares, thus compounding your position. The stock is likely to grow in value alongside the dividends that you receive. This is what makes dividend stocks one of our favourites for investing.
Diversification can prove to be a safeguard. If your investments are spread among several industries and sectors, you are likely to never be impacted too much by one event. Your portfolio will see a steady incline, free from many large drops in value.
These are our top 5 things to know about investing before you start. There is a lot to learn along the way. After all, if it was easy everyone would be doing it. But we hope this bit of knowledge can get you on your way.