Investments aren’t a game of chance. The better you are at them, the more successful you’ll be.
It’s a stark truth that varying amounts of money can be made depending on decisions made and actions taken. Investment options other than savings accounts aren’t guaranteed to make specific returns. There again, investing purely in ‘safe’ cash savings can’t be said to offer particularly good returns presently due to current low interest rates.
If you’re bewildered about how to go about making your investments count financially, then expert advice is worth seeking and there’s plenty to be found especially online including tutorials for the beginner investor.
There’s plenty of general advice in terms of investing principles to adhere to.
A key to basic wealth building is to spend less than you earn and invest the rest wisely. Building an emergency fund and paying off debt is important as this won’t then colour your strategy and induce you into acting impulsively to try to make a short term gain.
Above all else, the experts are agreed on the importance of investors considering two basic factors:
- Your financial goals
- Your attitude to risk
There’s a relationship between risk and reward; broadly speaking high risks can provide higher and maybe shorter term gains but equally sharp losses. It’s vital to match the type of investment strategy with the goals you have in mind and the attitude to risk whether you’re ‘cautious’ at one end of the scale, ‘balanced’ somewhere in the middle, or ‘adventurous’ at the top end.
Understanding this and adhering to it is important, and if you’re not sure how to then you should consult a qualified financial advisor to help you.
Knowledge is power
A key principle worth observing is from Benjamin Franklin, one of the Founding Fathers of the United States, who said: “an investment in knowledge pays the best interest”.
If you’re investing in the markets, whether trading yourself or through a fund manager with a unit trust or OEIC (Open Ended Investment Companies), then knowledge is key. A good starting point for stock trading terms can be found here courtesy of market investment specialists IG. Get up to speed with the key terminology of investing so that you’re never caught out.
Researching the market and other types of investment sector such as commodities is a staple of knowledgeable investing.
Many experts agree that following an investment strategy should be treated like running a business:
- Keep expenses low
- Improve profit margins
- Develop several sources of income
- Build cash reserves
- Ask ‘what is my risk?’ rather than ‘what can I make?’ when analysing a potential investment option
Warren Buffet, American business magnate and a hugely successful investor, extolls the basic principle of ‘buy low and sell high’ with the colourful statement: “Be fearful when others are greedy, and greedy when others are fearful.”
Alongside that it’s important not to hang onto loss making investments for too long. The danger is that you will become too attached to a particular investment or stock and share and there really is no room for sentiment in investing in the markets. Experts throughout the industry warn against investing based on emotion – keep it disciplined and systematic.
Above all you need to be patient; the higher probability and lower risk trades are out there and are worth waiting for.