It’s quite normal for you to feel overwhelmed when you want to start something new; being an amateur investor is no different. You’ll find yourself asking a lot of questions such as when you should start, how much you need to begin with, or even who you should turn to for investment advice.
The answers to these seemingly tricky problems that seem to haunt many beginners are quite simple. The most crucial step you should take is to go back to the basics and ask yourself one critical question. Why do you want to invest, and what are the rewards for great investments?
Understand that investing means risk, much like all other things in life, is vital. But If you learn and apply yourself with dedication, the probability of you reaping more significant rewards is way higher than the risk of losing your investment.
Risk in Investments
There are two types of risks in investments, high-risk and low-risk investment. Often the challenge for newbies is trying to figure out which is which and where they lie. However, the risk is not quantifiable. Think about it, and you’ll find that you cannot measure the risk of an investment except through volatility.
Take buying an asset, for instance, and expecting a 15 % return. The risk of this type of investment is the probability that the investment will not give back the expected returns. It’s like turbulence on a plane; you never know if it will lead to something catastrophic or if it’ll just pass.
High-risk investments are volatile. Investing in such ventures needs you to do your due diligence as an investor and come to terms that you might lose all the money you invest in the idea or business if something goes wrong.
Some of these high-risk investments include crypto currency-which has issues with liquidity and the volatile price of its assets. Foreign exchange- which only works when one party wins while the other loses, biotech industries with their high, under-performance percentiles, etc.
These investments protect against potential losses and the amount of damage the losses are going to incur on the investor. Low-risk investments mean that there is significantly less at stake both in the amount invested and its significance on the portfolio.
The United Treasury Bond is one of the best examples of low-risk investments. There is a shallow likely-hood that an investor with a treasury bond will fail to get the stated interests and principal payments. Although there may be some delays, which is rare, investors manage to get back large portions of the investment.
There are a lot of smart cheap investments that can make you a great profit if you’re starting. If you diversify your options on investing, read, and do more research on investing in the different types of investments available, then the chances are that you might hit some jackpot along the way. It would help if you were patient.
Stocks are an equity investment. They represent part ownership in a corporation and entitle you to your part of its earnings and assets. There are two types of stocks; common stocks and preferred stocks. Common stocks give shareholders the right to vote but do not guarantee them of any dividend payments.
On the other hand, preferred stocks mean that the investor has no right to vote but is guaranteed payment in dividends. There are two time-frames for stock investment; long-term and short-term.
Short-term stock investment is when you buy stocks that you intend to hold for a year or less. Usually, the idea for buying such stocks is to sell them quickly as soon as the price rises: the faster the price rises, the better for you. Short term stock investment is quite volatile and often comes with a lot of risk as compared to long-term stock investments.
Long-term stock investments are usually less volatile and come with far fewer risks. They usually involve investing a small amount in a business that lasts for more than a year. The longer, the better. However, it would help if you did your due diligence before investing in a corporation on a long-term basis. Ensure the company has good returns on investment, that its products are durable and you quickly understand how the company operates.
Affordable mutual funds are also a great way you could invest as a beginner. Mutual funds are investments where you pool your resources together with other investors who have the same interests. You then, as a group, purchase stocks, bonds, and other securities in a portfolio overseen by a portfolio manager.
Mutual funds are affordable and work by ridding you of any uncertainty you might experience as a beginner and putting all those demands on an experienced individual, the portfolio manager. All you need to do is make a small investment, and you’re good to go, plus, they are liquid and convenient.
Robo advisors are a class of online financial advisors that provide financial advice based on algorithms and mathematical rules with minimum human interaction. Robo investing is the best option for entry-level investors because it is cheap and easy to use.
The best Robo advisor, according to Business Insider, is betterment. It has a 0.25 % annual fee and has a $0 minimum account. Betterment also provides a daily cash management suite that includes a checking and savings account option.
There are several stock trading apps available on the market today. Most of them offer seamless services, and if you don’t want to lose a lot of money setting up your stock portfolios and your forex accounts, then you could start small and learn how the market works.
Freetrade stocks is one of the best stock trading apps that you can find on the internet. It has free stocks and ETF trading, has a quick account opening process, and provides a great mobile trading platform; however, it has no credit or debit card deposit.
Although investing as a beginner can be challenging, apps like Freetrade and other beginner platforms can be a great way to enhance your experience. They can provide you with necessary basic skills, which, when added to other knowledge researched in books and other sources, can help grow your craft, which will make you better at investing. Just remember that this is a learning process, and you’ll need to be patient.