Tips Before You Start Investing
Where are you now and where do you want to be in the future?
Before anyone starts investing, they must ask themselves the following questions:
- How much money do I have and how much can I invest?
Firstly, you must understand your financial situation. Based on the amount of money you make, you must first allocate money to cover all your expenses and then only invest money you can afford to lose.
- How important is my investment money to me?
Would you be in a tough position if you lost all your investment money? If that is the case then reduce the amount of money you invest and vice versa if you realize that you have more money to take a risk with.
- Based on my risk tolerance, what should I invest in?
Now that you understand how much money you have and are willing to invest, you must decide what you are investing in, based on your risk tolerance and preference. If you’re looking at higher risk investments because you want to earn a higher/faster return, then look at equities and cryptocurrencies. On the other hand, if you’re looking at safer investments, look at fixed income bonds or commodities.
- How much time do I want to put into investing?
Based on the amount of time you are willing to put into your investments, your investing style will be different. If someone is able to put in 8 hours a day into their investments, they’re better off trading volatile assets to get the most amount of return in a day. If someone is only able to trade once in a few days, it might be better to put your money into long term investments (like blue chip stocks or ETFs). Both strategies entail risk, but the first requires more time to mitigate the risk.
- How much time do I have left to invest?
Knowing how much time you have left to invest (planning for retirement or investing as a hobby) would result in different investment horizons. Someone with not much time left to invest would have a shorter investment horizon because they are trying to make as many trades as possible. Someone who is just starting would be happy to hold an investment for 6 months because they have a lot of time ahead of them to invest in other securities.
- What is your goal?
No one can invest without a goal in mind. Are you investing to make a few quick bucks or are you here for the long haul? This will be the basis of all your investing decisions.
And a few tips
Start small: There’s always time to increase your size, and even small positions can be exciting
Find your style: Roaring Kitty likes value investing, other people like technical analysis. Test ideas of different nature and see how you relate to them