Investing is neither easy nor hard.
You can choose the level of complexity in your portfolio, just as you can choose the level of risk. For beginner investors, however, we must recommend caution and clarity.
Successful investing is investing that enables you to reach your financial goals.
So, let’s go over the key investing tips that every new investor should keep in mind.
What are 10 tips to beginner investors?
1. Education
There are several types of investments and we’ve covered some of them specifically on our blog. If you’re going to self-direct your investments, it’s necessary that you understand how each investment type and/or financial instrument works.
* By self-directed, we mean any investment that is made by you without the direction of a financial professional. These include investments in stocks or bonds, or in instruments like mutual funds or ETFs.
In addition to the types of investments you are considering making, learn about the investment strategies as well. Self-reflection and understanding the type of investor that you are helps ground your decisions in consistent logic.
2. Information
Good investors are informed individuals (or firms). This means being informed on:
- Economic trends
- Financial news
- Global economic developments
The big picture, however, may distract too much from other important aspects of investing in companies stocks:
- Quarterly reports
- Changes in management
- Cash flows
- Revenue, revenue growth, and earnings
- Profit margins, operating margins, and net margins
- Debt
- Price/Earnings ratio (P/E)
- Price/Book ratio (P/B)
The last two are not very romantic, but they are more often than not crucial.
P/E ratio is a company’s stock price against its earnings per share.
P/B ratio is a company’s stock price against its book value. Book value is the company’s assets minus its liabilities.
These two ratios are good measures of the relative undervaluing or overvaluing of a stock based on its earnings and assets, respectively. For any kind of long-term, passive, value investor, these cannot be ignored.
3. Goal setting
Setting goals is important for determining the types of investments you will make.
Goals include timeframes, which come with risk profiles of varying appropriateness.
In general, long-term investments like retirement have two phases.
- There’s an early phase in which you can afford more risk.
- Then there’s the later phase when financial experts generally agree you should be more cautious.
Simply using excess disposable cash to invest and build wealth may justify a more liberal strategy.
4. Budgets
Budgets are everything in finance. They should be in place for establishing an appropriate fund for your investments.
Beginner investors often make the mistake of investing too much right at the start. This can cause personal difficulties regardless of the success of your investments, whether they be short-term or long-term.
Budgets help you stay disciplined and invest the right amount for you.
5. Diversity
Diversifying investments means investing in multiple:
- Securities
- Investment types
- Industries
Investing in a wide array of oil stocks may count as a diversified approach. But if oil crashes, so does your whole portfolio.
Apply this logic throughout your career as an investor.
As a sidenote, be aware that financial instruments, such as those with securities in only a limited range of industries, can have the same weaknesses.
6. Patience
For a beginner, active investing is not at all recommended.
So, be patient and choose securities with strong fundamentals. Invest in fiscally responsible companies with large savings and stable growth profiles, for example. Flashy, short-term decisions often ruin new investors. It’s not a flashy or fast activity for most.
7. Watch fees
Investing fees for direct investors, or even many passive investors, may be larger than you realize.
Even wealthy investors have to be aware of the effects on their bottom lines.
8. Don’t try to beat the market
Berkshire Hathaway beats the market during bear markets and recessions by a median of 4.41%.
That’s about as good as it gets. Most investors lose to the market. That includes most professional investors.
Focus on your individual goals and the investments with the fundamentals that will help you get there.
9. Stay emotionally detached
This may be the most important of all investing tips.
It’s Warren Buffet’s most constant piece of advice. Emotional decisions in business and investing just aren’t likely to go well.
Remember your budget, your goals, and your investment strategy. Forget euphoria, fear, guilt, and all the other forces that seek to destroy you. In the investment world, that’s all emotions are.
10. Taxes
Plan your investing strategy alongside a sound tax strategy.
Take advantage of IRAs and 401(k)s. Regardless of your goals, it pays to pay your future self while paying less overall to the IRS.
How can I become a successful investor?
This is a long-term journey that most don’t succeed at. But there are plenty of great examples to emulate.
Read financial literature written by the successful investors you’d like to emulate. Many are very open and even modest about how they’ve operated over the years. They share their successes, but also their failures.
The latter are often even more important, as failures are a key part of learning.
By learning of others’ failures, you may be able to prevent repeating their mistakes.
The Top 5 Most Common Stock Investing Strategies Adopted by Successful Investors
What are the 8 simple steps to start investing?
As a quick step-by-step process, remember these 8 steps:
- Making clear goals
- Budgeting your investment fund
- Educating yourself on investments
- Setting an investment strategy
- Opening an investment account
- Choosing your investments
- Monitoring and adjusting as needed
- Remaining calm
Conclusions: What are the 3 keys to investing?
There are ultimately 3 keys to investing.
First, educate yourself and constantly study and stay informed. Knowledge is power, but wisdom is also power. Stay informed and learn from the routines and wisdom of great investors.
Second, be cold and disciplined. Patience is key, but making one emotional mistake can ruin all your hard work. Bake your goals and strategies into your routines and stick by them.
Lastly, recognize and mitigate risks. Diversify your portfolio. Stay up to date on the status of all companies you invest in. Listen in on the meetings which you are entitled to listen in on as a shareholder. Stay ahead of the game and prevent disaster while maximizing success with the same tool: proactivity.