New To Investing? These 3 Tips Will Make Your Journey Easier

For the new investor, a great journey could be cut short abruptly if certain considerations are not put in mind first. The following are some of those tips that will come in handy if you are investing for the first time

“This year, I’m going to invest in stocks.”

With the New Year in full swing, there’s a long list of goals and resolutions on the drawing table. If you’re reading this, chances are that one of your goals is to increase your financial literacy and invest for wealth creation.

As a consistent investor, it will most likely not be new waters and will, as such, be easier to navigate. However for the new investor, this proclamation will be just that if certain processes are not first put in place.

For the new investor, a great investment journey could be cut short abruptly if certain considerations are not put in mind first. The following are some of those tips that will come in handy if you are investing for the first time:

Invest Money You Don’t Need For At Least Five Years

The goal of investing is to make profit and build wealth. However, one of the biggest deterrents to this dream is an impatient investor.

Impatience in the stock market will not only make you pensive; it will also cause you to make a series of bad decisions and you might just play into the unfavourable dynamics of the market by being too much in a hurry to gain.

A key reason for this is that you need to give your funds enough time to rise above the ups and down of the market.

Be A Little Passive: You Are Not A Trader

When investing in the stock market, there are two routes to take. The first one is trading, where traders are actively chasing gains and minor changes in the market and the other is investing for value creation and growth.

When trading, not only are your objectives constantly changing with trends in the market, you also stand a higher risk to make the wrong investment decisions. If you invest and happen to notice gains in a short period of time, even when instinct tells you to cash out, the better option is to ride the trend.

In the same vein, even when you do make a loss or more, the better idea is to wait it out as opposed hurriedly trying to cut your losses. This is where being a little passive comes in. It means you allow the market play itself out without interfering too much.

Being passive in the stock market does not mean you invest your funds and sleep on it. However, don’t make decisions and try to make gains hastily. Unless you’re a pro, it is guaranteed to trap you sooner than later.

Interestingly, research carried out by Dalbar, an independent evaluator of financial performance, revealed that over a 30-year period, actively managed funds grew by 3.7% a year, while a passive approach using funds that track market indices grew by about 10% a year. This is one of those times that a little bit of distance will help you win.

Reinvesting And Compounding Hold The Real Magic

Without a doubt, you will make money from investing and waiting out the growth process. However, unleashing the power of compounding makes the process a little faster.

Compounding is what opens you an exponential growth that has been described as one of the wonders of the world. However, you have a role to play. By reinvesting your gains, giving your investments ample time to thrive and choosing stocks with good and steady growth rates, your investments will enjoy a multiplier effect you didn’t know existed.

With these three tips in mind, you are well on your way to building wealth seamlessly and the amount of investment mistakes to be made will have been reduced significantly.

Written by Lawretta Egba.