You’re ready to start investing, but you have questions – who doesn’t? Most amateur investors make a lot of mistakes before they finally “get it.” Unfortunately, those mistakes tend to be quite expensive. But, you don’t have to go through the same mistakes everyone else does. Here are 4 ways to bypass the learning curve.
Determining Investment Goals
The biggest mistake, by far, that most investors make is they do not set good financial goals. Many don’t set goals at all. Yet, goal-setting is probably the most important activity for any successful investing endeavor.
So, what is a good set of goals? It will always be goals that reflect your personal values and reasons for investing. So, for example, if you’re trying to save up for a vacation, you will need to know the type of holiday you want to take, when you want to take it, how much it will cost, and alternative options.
Let’s say you want to take a cruise. It costs £2,000. And, you want to take this trip year from now. How much will you be able to save up? How much do you need to save up? Knowing if there’s a disparity between your ability to save and your need to save will make a huge impact on whether you can go.
If you can only save $100 per month, you’ll never make it. Why? Because you’ll need to save roughly $166 per month (with no interest). If you’re able to earn 5 per cent on your savings, this will save you about $100 over 12 months, but you’ll still need to contribute a significant amount of money.
Now, think about longer-term savings needs. Retirement planning is infinitely more complex. You’ll need the help of a good financial calculator – a planning calculator.
Choosing the right investments isn’t as important as you might think, but it is important. Without investments, you will need to rely entirely on your personal savings rate, which will make it very difficult to save enough.
But, at the same time, do not get carried away with investment options. Usually, a few basic investments are needed to help you achieve your goals. You would be wise to start out with a basic bank account, perhaps some certificates of deposit, some funds, and maybe a higher-risk option if you want the opportunity to make more money.
Determining Risk Tolerance
Risk tolerance is a very personal decision. While many financial services companies have formulas to help you determine where you need to be (e.g. conservative, moderate, aggressive growth), you really need to make this decision on your own based on your personal needs and goals.
But, for many people, having at least one high-risk investment is both fun and valuable. A higher-risk option, like stock options or forex trading, can give your savings the boost it needs. As long as you do not allocate so much money that it endangers the rest of your savings, you’ll be fine.
These forex brokers, for example, make forex trading simpler by providing a more intuitive platform to work from. Whereas an investment like forex is typically complicated and high-risk, some companies like Alpari are giving the UK an alternative.
Investing For The Long-Term
You’ve heard it before, and you’ll likely hear it again. Always invest for the medium to long-term. Point-blank: it’s almost impossible to predict the short-term movements of the market. Stick to the long-term, and you’ll be able to overcome almost any short-term drawdown or market correction.
James Martin has much success in his first few years of trading. A self-confessed investing fanatic, he likes to share what has worked best for him by posting on the web. You can find his illuminating articles on a variety of websites and blogs.