5 Enlightening Tips to Investing Wisely
Investing wisely is looked at in two ways. Whilst some look at investing as a means to an end, such as retiring early, others see it as a game in and of itself in which profit maximization is the goal.
Of course, the former implies that one’s own life savings are at stake, whilst the latter can often be gambling or aggressive trading with money they’re comfortable with losing. The former is often associated with trading, whilst the latter is more likely to be referred to as investing.
Issues arise when the two get conflated, because people may be gambling their life savings away with advice from the internet.
Investing Wisely Tip #1: Find Your Niche
Like any other field, becoming an expert can be a quicker way to put you at an advantage. Forex brokers are popular because many people see forex as their field of expertise. Others are becoming highly obsessed with cryptocurrency.
It’s also important to choose the right broker based on your expertise. TopBrokers.com, for example, can help decide which are the best Forex brokers, whilst the list for crypto brokers may be very different.
If you are choosing forex, for example, then already you can begin picking out information relevant to this when reading the news, or looking at the stock market, and so on.
Furthermore, it gives you fewer possible investments, so you’re not swayed by temptation in a new market you’re not familiar with.
When it comes to finding crypto brokers, you need to do a lot of research to ensure that you aren’t using a fraudulent broker. The good news is that there are brokers out there that have proven to be legitimate and easy to use. For example, Bitcoin Motion is safe and secure. It uses software to help investors to make wise decisions in their purchases. Software like this is ideal for beginners and more experienced traders alike.
Given that trading is a zero-sum game, specializing is a good way to gain an advantage. However, if you’re simply investing for the long-term, specializing is less important and can actually hinder diversification.
Investing Wisely Tip #2: Compare your returns to the market average
Many people will look at their performance in investing and state their returns in isolation. However, this is a bad approach because our returns should be relative to the average market returns.
Why? Because if we cannot achieve better than the market did, we’re likely getting fewer returns than if we had simply invested in an index tracker.
Not is it about the returns, but also about time and risk. It takes time to actively make individual investments as opposed to settling for the average market returns from an index tracker.
Your investments are likely going to be less diversified than something like Vanguard’s Global All-Cap, so you’re going to have to make significantly better returns if it’s worth it given the higher risk.
Investing Wisely Tip #3: Stick To A Plan
If you’re a trader, you’re likely going to have some rules. For example, stop losses, signals of when to buy, how much of your bankroll to trade at any given time, and so on.
This should be stuck to religiously because improvised deviation away from it is more likely to suffer from bias and emotion.
Investing in stocks, on the other hand, you will also likely have a plan. For example, buy-and-hold a fund for 15 years. If this is the plan, then being anal about sticking to it is important because it can prevent you from panic selling during a recession or other stressful periods of time throughout the years.
Furthermore, it’s easier to compare with your forecasts and expectations if you’ve stuck to the plan.
Investing Wisely Tip #4: Read and Research
It’s important to never stop reading about markets, investments, and strategies. There’s always more to learn, and you can legitimately get some good ideas online.
Though of course, we need to be able to filter and think critically about what we read online. What we read should merely steer our attention, and not make decisions for us.
For example, an example like Cardano might be something a trader is interested in. It would have been difficult to have found this coin without reading forums and watching Youtube.
However, it’s one of the thousands of fraudulent coins backed by keyboard warriors, so you can’t be swayed too easily. Having it brought to our attention is where we should stop. By not allow our strategies to be swayed by internet tips.
Investing Wisely Tip #5: Dollar-Cost Averaging
For investors, they are likely investing for the sake of retiring or building up personal savings to afford a home. A good strategy to be aware of is dollar-cost averaging. Essentially, the regular periodic purchasing of an investment – small and frequent – help mitigate the impact of volatility.
Instead of investing all of your $10,000 savings in one go, you could invest $250 per week over 10 months. The odds are that you will make fewer gains than lump-sum investing. Assuming a bear market continues, but you will have reduced the losses in the event of a dip or crash.
In fact, you may benefit from a crash with DCA.
Of course, some of us do not have a lump sum, so DCA is our only option. These can be set up with a direct debit, and then forgotten about. This is what makes it a great way to stick to a strategy without even thinking about it!
Final Word
Trading can be an enjoyable activity with potential for high gains – but we should be prepared to lose money fast too. It’s important that we do not trade with a high % of our savings, and instead allow the bulk of our savings to be earning slow-but-steady market gains in the background.
Though it’s important to note that such slow but steady investments still hold short-term risk. Savings we expect to dip into within 6 years or so shouldn’t be tied into equities. Instead, put your short-term cash in ‘high’ interest savings accounts, premium bonds, or possibly even government bonds.
