Lucy - BQ Magazine EditorBy the time you finish reading this post, millions of dollars (and in other currencies) will be have flowed back and forth in the investment market. That’s especially true given recent fluctuations in the stock market, thanks to political changes we’re all aware of.
As a newcomer investor, without the resources available to the top hedge funds, comprised of many teams with banking experience, you may feel a touch overwhelmed. Perhaps buying a little crypto here and there, or a fraction of a share in a particular company, is as far as your ambitions go.
But while you may not want to make this a full-time career (which is generally advisable, given how no one can predict the future of the stock market, legally anyway), you may still wonder if there are good principles that could guide your approach to investment opportunities.
We believe there are. Let us explore some of those below to possibly assist your approach. Please remember that this isn’t direct investment advice for you, just an impartial description of some of the techniques experienced investment outlets use to achieve better success:
Diversification Is King
You’ve likely heard the old wisdom of “don’t put all your eggs in one basket,” and that’s rarely truer than in the world of investments, and practiced on a daily basis. This has a fancy name, “diversification,” which is pretty much just practice of spreading your investments across different types of assets, sectors, and sometimes even countries. It means you won’t be too heavily affected if one area suddenly drops in value.
This could mean owning a handful of stocks in different industries, some bonds, a little real estate investment through REITs, and maybe a very small stake in a precious metal like gold. It’s better for your mental health to not have on investment go south affecting your entire portfolio. Of course, you can still have leanings, as perhaps you favor tech companies because you believe in their long-term growth. That’s fine, but by keeping a broader approach too, you’ll have a better chance of coping with downturns.
Understanding Risk Tolerance Is Crucial
Before you put a single amount of currency into anything, it’s essential to understand your personal risk tolerance. While you shouldn’t want to lose everything of course, you should be prepared to lose it all if something unexpected happens. Assume that the money you’ve invested has gone, and anything else is a bonus, and learn to cut your losses or cash out when the gain is something you’re happy with.
There’s no right or wrong answer here, though, at least with respect to specific figures. Your personal tolerance should make sense for your financial goals, timeline, and comfort level. If you’re saving for a home deposit you’ll need in three years, it makes little sense to gamble that money on risky investments.
If you’re putting away a small amount for retirement thirty years down the line, you might afford to be a little bolder, or perhaps try on unreliable markets like crypto. Hedge funds, because of the amount of money they’re responsible for, will tend to focus on safer bets when they can.
Consider Averaging Your Cost
One of the obvious big fears when investing is buying at the wrong time, such as just before a big market drop, for example. While you can’t perfectly time the market (and even seasoned professionals can’t do this reliably), there are ways to help balance it out.
“Dollar-cost averaging” is one such method even hedge funds use, which simply means you invest a fixed amount at regular intervals, regardless of whether the market is up or down. Over time, this means you naturally buy more shares when prices are low and fewer when they are high, smoothing out your average purchase price.
It’s a simple technique, but it’s often recommended for newer investors because it helps you stay disciplined and avoid chasing the market immediately with a sense of excitement or the feeling you have to chase or dump depending on the line direction. It also helps you avoid fretting and stay patient, which is good investment advice no matter where you hear it from (well, except for the person encouraging you to invest in their asset as we’ve seen with crypto rug pulls.)
With this advice, we hope you can feel a lot more confident, even with your humble investing approach. You don’t have to come away with millions each week to have understood some basic principles and benefits as a result – even if that just means losing less.