As a new investor, there is so much information out there. It’s easy to get overwhelmed and not know where to start.
To make things easy, here are 3 tips to know before you get started.
1. Time is a more important factor than how much money you invest
Logically, you would think that the more money you invest – the bigger your net worth. However amount of money isn’t necessarily the most important factor when investing – it’s time! Time can outperform someone who invests more money than you or someone who times the market. The reason for this? The magic of compounding.
Keeping this in mind, this is the reason why it is so important to invest early – even if it’s a small amount!
2. Investing in different types of things reduces risk
You’ll hear the term diversification thrown around a lot when you get started with investing.
It basically means “don’t put all your eggs in one basket” or don’t invest all your money in one type of investment. So, if you put all your money in one single stock you wouldn’t be well-diversified at all. Compared to if you own a home, have a stock portfolio, some bonds and some silver bars – you would be well-diversified.
The reason it is important to diversify is because it helps you reduce market risk. This basically means it helps your portfolio become a lot less risky and you’re more likely to make a profit.
3. Don’t sell just because you made a profit
As a new investor, it is so exciting when you make a profit for the first time.
With this excitement also comes temptation. Temptation to sell and cash out your investment. However, unless you have a good reason – do not sell just because you have made a profit! The reason for this is because you can miss out on significant gains in the future and it can be more difficult to re-enter the market at a higher price.
There are so many tips that I could give you as a new investor, however these three are a great start!