DavidFinancial advisor

How to Invest Safely: 10 Tips for New Investors

How to Invest Safely: 10 Tips for New Investors

The main goal of any investor is to preserve the capital and if possible to increase it. How to invest safely?

1. Don’t invest borrowed money

Never take out a loan to invest in the stock market. Even if you think it would be nice to take money at 8% annually and invest in instruments with a profit of 12%. There is no guarantee that you will make money. The economy is cyclical: a boom is followed by a recession, followed by a new boom. At each stage of the cycle different instruments will bring profit. You also need to consider the risks associated with politics: 2022 showed investors how the market situation can change dramatically. If you invest the bank’s money, then the losses will have to be covered from your own pocket.

2. Invest only the amounts you are willing to lose

Investments are always associated with risk. Don’t place money you may need for your everyday expenses in a brokerage account. First, analyze your income and expenses and decide how much you can set aside each month for investments. Do not ignore mandatory spending. Don’t try to save as much as possible just to find “extra” money. Do not trade on the stock exchange with funds from the financial safety budget. Invest only the money you are willing to lose.

3. Think with your head

Follow the strategy you have developed. Do not blindly trust analysts - they may also be wrong. Each investor is responsible for his capital. Therefore, study the news, look for primary sources, compare expert forecasts, weigh all pros and cons before buying or selling assets. Analyze the instruments in which you invest.

4. Don’t get emotional

A successful investor thinks rationally. When there is panic or euphoria in the market, don’t follow the crowd. Do not give in to emotions, use your mind, analyze the situation, study the stock, which everyone around began to actively trade. Remember, the stock market can be manipulated. Some of the major players could start a rumor in order to “pump” money into a certain stock, sell their stake at the peak and take profits. This is how the pump and dump method works.

5. Invest only in the instruments you understand

If you have never heard of cryptocurrencies, futures and options - do not invest in these tools until you learn and understand them. Don’t try to keep up with trends. If for some reason you cannot analyze the financial statements of the issuer, but want to buy its shares, it is better to postpone the purchase. First you need to understand the tool and only then you can use it.

6. Act in accordance with the goals, strategy and risk profile

Many investors often forget what they are investing for, stop saving money every month to achieve a financial goal and do not follow their own risk profile. Don’t do this. Remind yourself why you invest in stocks and bonds, why the ratio of conservative and risky instruments in the portfolio is what it is. Be disciplined - the habit of regularly saving money and buying securities will help you save up for your dream faster.

7. Diversify your investment portfolio

Diversification is the allocation of resources across different assets. It helps reduce portfolio volatility and protect it from sudden drops. It is better to invest in several types of instruments, countries, currencies, industries at once. One of the most accessible tools for diversification is an equity fund. If you allocate resources wisely across assets, you can achieve your financial goals faster.

8. Rebalance your portfolio

It is important to make a diversified portfolio, but it’s also very important to constantly restore the initial shares of assets in it. This process is called rebalancing. Decide how often you will adjust the portfolio - once every six months or once a year.

9. Don’t play the stock market

If you invest in only one asset in hope of making millions, you will most likely incur losses. Don’t try to outsmart the market - long-term investors are more likely to win. To trade skillfully and make a profit quickly, you need to become a professional trader. To do this, you need to learn a lot, including from your own mistakes.

10. Constantly learn new things

Start investing only after learning. Expand your knowledge pool - buy books about economics and investments, take courses, communicate with like-minded people. Follow the news to understand what is happening in the stock market.