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7 Golden Rules of Investing for Beginners

by Alex Musk - 13 May 2022, Friday 303 Views Like (0)
7 Golden Rules of Investing for Beginners

Want to start investing but have no idea where to start? Many new investors make mistakes frequently due to their inexperience and lack of knowledge, ending up losing money. But don't worry, in this article we highlight 7 golden rules of investing for beginners, so that you can do it in an informed and convincing way of what you are doing, avoid some basic mistakes ad  schedule 1 tax form.

Don't Believe Everything You Read

Newspapers can only publish reports aftermarket prices go up or down. If you want to make money from your investment, you need to act before the market gets hot, as the stock price is likely to peak given the great publicity and fuss surrounding that investment. Remember: under no circumstances should you invest blindly or you may end up paying prohibitive prices. There is no guarantee that prices will continue to rise and you may have to sell at significantly lower prices than you bought.

Raise the Return Target

Growth in value does not necessarily imply a successful investment, as a high rate of inflation would offset the growth in value. If the return on investment is lower than the inflation rate (the inflation rate in Portugal in November 2015 was 0.62%) you would still be losing money. You can opt for mutual funds, as well as clauses in insurance so that you can keep up with inflation and obtain a higher return on investment.

Spread the Risk

It would be better for you to invest in a variety of sectors and companies, such as a healthcare company, a transport company, or a real estate company. With a low correlation between these sectors, it can effectively diversify investment risks. As it is very unlikely that all of your investments will go bad at the same time, a downturn in one sector will not negatively affect the performance of your portfolio. To have a diversified portfolio, you can choose to invest in an index fund or hire a financial advisor in order to build a portfolio with a greater variety of investments, with lower risks.

Don't Invest in Entities You Don't Know

You should not invest in industries or companies that you do not know properly. Avoid investing in companies about which you have no idea about their operation and business area. In the same sense, if you do not know your market well and its products and raw materials, it is likely that you will find it difficult to understand that the drop in oil prices could have an impact on finances and coal mining companies, for example.

It is impossible to passively adopt an investment strategy with the frequent fluctuations in the markets. It will also not be able to make timely decisions if it is not properly informed of the current market situation.

In addition, the inability to understand the investment can generate serious problems in your financial plan. For example, if you understand the guarantee and non-guarantee of capital insurance returns, the odds dictate that you may earn less than what you initially invested.

Stabilize Your Debts First

If you have accumulated huge debts on your credit card or have applied for a loan with a very high-interest rate, you should get rid of all debts before investing. You may think you can pay off debt with the earnings generated by your investment, but the chances are slim, as it's incredibly difficult for most new investors to earn returns of at least 9%.

Plus, with the high-interest rates on credit cards, you might be surprised at the cost of interest before earning enough to cover the debt. You can try joining a consolidated credit solution, with which you can combine all your credit card debts into one loan, reducing interest expenses.

Invest and Save at the Same Time

If need be, it is not easy to withdraw money from a mutual fund or structured deposit overnight, as you will likely incur a substantial loss (even if you manage to withdraw that amount).

It is wise, therefore, to put together some savings for a less good day. Illiquid goods such as luxury watches and jewelry should not be considered in your savings account as they are difficult to sell immediately in times of emergency.

So it would be better if you could have savings and an investment fund at the same time. If you don't have enough money to create and maintain these two types of funds, try to save at least 6 months of your salary before starting any investment.

Establish a 2 Week Decision Making Period

Take a step back if you have a big loss on an investment. Many people cannot keep calm and tend to double their investment in order to recover what they have lost. This is not just common for new investors, it is equally true for experienced traders and fund managers. They panic and tend to seize any opportunity to regain what they have lost.

That's why we advise you to take a step back, think carefully and weigh the pros and cons before making any decision. Review your portfolio and think carefully before making your next decision.