Investing can be intimidating for beginners, but building a strong investment portfolio doesn’t have to be complicated. Here are five simple tips for beginners to think about when starting to build their investment portfolio.
Identify your Investment Objectives
This is a crucial step that many first-time investors miss. You may want to simply get started as soon as you can, and buy some stocks or cryptocurrency, but with clear objectives for your investments, you will struggle to make consistent gains. What are you investing for? What do you hope to do with the returns on your investment? These are important questions to answer that will help you design an investment strategy and the types of investments you need to make. Fail to plan and you are planning to fail.
Make Sure your Portfolio Is Diverse
Have you ever heard the expression ‘don’t put all your eggs in one basket’? If something were to happen to the basket, you wouldn’t have any eggs. It is the same with your nest eggs, if you invest in a single product or stock, you will lose everything if something bad happens to the investment. You need to spread the money around and use a range of stocks and investment vehicles to reduce the risk of losing your money. This doesn’t just mean investing in different stocks, but also in different types of assets like houses, businesses, cryptocurrencies, or precious metals.
Knowledge is Power
Before you invest in anything, you need to understand it. Never buy a stock or invest in an asset if you have not researched it carefully to ensure it fits in with your objectives. You should compare stocks against one another and other investment opportunities before committing to buying. It is easy to compare by a wide range of variables using online tools that will help you to increase your understanding of the market and how you can expect a stock to perform. With physical assets like property or a business, you need to take a close look at the local housing market or the business plan to help you decide if it is worth investing your money into it.
Always Read the Small Print
Nearly every investment comes with fees, and you need to take a close look at how these are structured to ensure you are getting the best value. Some investment opportunities come with a set, one-time fee to cover the costs of buying and holding your shares. If this fee is a percentage of your investment it can add up to a lot if you are investing a large sum. You may have to pay a fee for each individual stock you purchase, rather than your portfolio as a whole. This means that even small fees can add up quickly if you are buying a wide range of stocks. Study fees and charges carefully, and factor them into your budget.
Be Disciplined and be Patient
There is no such thing as a get rich quick scheme. Investments take time to mature, and there are no guarantees. If you are going to be successful when investing, you will have to be self-disciplined and patient. When it comes to stocks and shares, and to property prices, the value goes up and down, so you have to take a long term perspective. Things can change quickly, and losses on one day can easily become profits in the next week. Don’t panic, keep a close eye on the level of risk you are exposed to, and try to prevent runaway losses by hedging your investments.
By following these tips, beginners can start building a diversified and balanced investment portfolio that suits their needs and goals. Remember to start with a clear investment objective, diversify your investments, invest in what you know, keep an eye on fees, and stay disciplined and patient for long-term success. Happy investing!
Jason is the Marketing Manager at a local advertising company in Australia. He moved to Australia 10 years back for his passion for advertising. Jason recently joined BFA as a volunteer writer and contributes by sharing his valuable experience and knowledge.