Over the last ten years I’ve heard tons of investment tips. While some were certainly helpful, others were just downright ludicrous. Here are some of the best investment tips for beginners I’ve personally used. Please note that these tips reflect my personal situation and may not fit yours. Please seek out professional financial advice before making changes to your accounts.
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When investors try to “time the market”, they essentially try to predict the dips before the highs. These investors attempt to find the best time to get in on a stock before it takes off in order to maximize their investment and ultimately attempt to exit at its peak. This strategy has been made even more popular with new investments such as meme investing. However, this strategy is very difficult to execute. While more experienced investors may be able to spot signs of an impending dip, the market can be unpredictable in the short-term so there is a lot of risk associated with this strategy especially for a beginner. Don’t discount the power of longevity. Compounded over time, a steady $500 monthly investment over the course of 30 years with a 7% return will net $588,532-not a small chunk of change.
We’ve all heard you need to buy low and sell high. Well if it was that easy we’d all be millionaires. When times are tough (circa 2001, 2008, 2020), people are hesitant to put their money into what they consider to be risky situations which is why when the rumor mill starts to fly, people pull their money out at record speed. However, if the last 30 years has taught us anything, it’s that while the market may experience periods of decline, it always comes back up (1). For example, if you had invested $10,000 in 2009 in an ETF tracking the Dow Jones and just left it there without any further investments, your portfolio after ten years would be worth approximately $23,000 (adjusted for inflation). Had you pulled your money, you would have lost out on $13,000 worth of earnings.
Before you start investing, find a strategy that works for you. Are you looking to create continuous income via dividends, interested in growing the value of your portfolio, or maybe a combination of both? What is your risk tolerance? Will you be retiring in a few years? These are all things to consider as part of your strategy. Once you decide what to do, execute and stick to it. Now your strategy may change over time as your personal situation changes. However, don’t be swayed by sporadic investments that may derail your plan. GameStop is the perfect example of a stock gone wild, driven not by the promise of anything financially valuable, but rather the psychology of the greedy mind. While there were some investors who made it big when GME launched from $2 a share to $483 in a few short days, there were also a lot of investors who lost big time money when it dropped back down to $52. Don’t be tempted by these short-term market hyped stocks if it’s not part of your plan.
Warren Buffet once said, “if you cannot control your emotions, you cannot control your money.” The stock market can be risky and volatile with dips and losses being a natural part of investing. If you truly want to win at the investing game, you need to take your emotions out and make decisions based on your strategy and goal which may be challenging as a beginner investor. Part of regulating your emotions in the market is understanding your emotional risk tolerance. We sometimes think about risk tolerance focusing only on the ability of us to physically part with money. However, there is a strong emotional component we need to understand. Typically, the longer you invest, the higher tolerance you build.
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(1) Source: Down Jones 100 Year Historical Chart https://www.macrotrends.net/1319/dow-jones-100-year-historical-chart