This is a guest post by Eric Pangburn. Eric is a personal finance enthusiast and content writer. He continues to write and work extremely hard to grow blogs for some side hustle income. Most recently he has been blogging at http://financerz.com
Investing is taught to be one of the best ways to secure one’s future, but beginner investors are often understandably worried about losing whatever meagre funds they have. However, that does not mean they should shy away from it altogether, some of the top investors started off small and made their way up. There are lots of great investing tips out there and we will focus on the main ones recommended by financial advisors.
Institute for Private Investors president Mindy Rosenthal assures that everyone can get into investing no matter how little starting money they have. Money doesn’t guarantee you are a better investor than someone with less money, Rosenthal remarked. However, she also stressed that, for starting investors to succeed, they should know be aware of the following.
1. Don’t get too hung up with “the next big thing”
We have all come across this: A new company that many tout as the next Apple, Google, or Facebook. As expected with these, many new investors would immediately want to jump onto the bandwagon. However, Weymar Gong of the family wealth advisory firm Signatures, says it would be better to look for less in-demand stocks.
Gong explains that, with a cheaper stock, you get a better chance at earning a profit and a lower risk. “It is unlikely for [wealthy clients] to purchase when the stock trades at $40 because they will have $40 at risk and the upside and downside are symmetric. However, when the stock trades at $20, then you have a much better upside potential and smaller capital at risk,” he illustrates.
2. Know your tolerance for risk
One important pointer Rosenthal says new investors should keep in mind is that they will inevitably lose money at some point. As such, she advises that one should already be aware of how much he or she is willing to lose. “Set the number you need to have at the end of the year to make you sleep at night,” she remarks.
However, she also points out that staying at the same level of risk the novice started with, will not get him/her anywhere. “You get more money for taking more risk, that’s how it works,” Rosenthal reasons. “But you need to know what you are comfortable with losing. It is risky to keep all all your money in cash or cash equivalent if you need to earn 8% or 9%, you can’t earn that with those options.
3. Don‘t underestimate dividends
The Motley Fool analyst Sean Williams notes that many beginner investors tend to underestimate dividends and the ability to reinvest them. He remarks that these dividends and the reinvestments that can be done with them are very useful in building up a great retirement portfolio.
But, Williams said that, for these to really pay off, one should know how to use them the right way. Here, he says a good strategy would be to reinvest the dividend payments one gains into the same stock. He explains that owning more shares will result in larger payments in the succeeding years. And with continuing reinvestment, the potential payment growth will be even larger.
4. Familiarize yourself with the fees
This one is something that many investing neophytes tend to gravely overlook. But, as analyst Jason Hall remarks, the impact of these fees on your earnings can be surprisingly enormous. Here, it is imperative that you know all the associated fees and taxes on your investments.
Meanwhile, Truepoint Wealth Counsel’s Scott Keller shares that cost should always be one of the biggest considerations when it comes to deciding keys to success when it comes investments. He notes that high-net investors often go for a more diversified investments items at lower costs. Rosenthal agrees and says that it would be better for beginning investors to look for portfolios that don’t frequently turn over compared to others.