7 Rules for First Time Investor

Investing doesn’t have to be complicated or frightening.  Investing is all about putting your hard-earned money to work for you somewhere in the financial market with the goal or purpose of increasing it for use in the future.  Investments can be for education or retirement, to help others or yourself, for five years down the line, or for fifty.  When you begin to invest, you should have a few things in mind. 

Our “7 Rules for First Time Investors” cover 7 important things to keep in mind before you start investing: our rules that first-time investors should adhere to.  Take notes!

1.      Develop a plan: Before you consider putting your cash to work, you must understand what you are investing in and what you are investing for.  Knowing “why” you are investing and what you are investing in is part of the Big Plan.  Having a plan will empower you to know your timeline, condition your target return, calculate your appetite for risk, and determine which asset class best suits your needs and desired outcome.

2.      Never Invest in something you do not understand: Before investing, it is better that you stick to what you know and always do your own research.  If you know nothing about the stock market, then why would you invest in it?  If you don’t understand how something works, stay clear of it.  You’ll do better to find out how and why you should invest in something by becoming an expert on it through your own research.  Want to invest in Real Estate but don’t know anything about it?  Get a book.  Get several books.  Begin investing by doing research on your own and learning.  Investing 30 minutes of your time each night for an entire year will make you an expert in nearly any field.

3.      Don’t Speculate: The stock market abounds with stories of the “next big thing” (that new internet story or the resource explorer sitting on a legendary deposit, but not earning a profit “just yet”).  Although the dream stories can come true, it’s rare.  Even Bitcoin crashed and no one has made any money in that currency that’s going to make a comeback someday.  Buying shares in these types of things are little more than a gamble.

An investor who is disciplined would not concentrate or focus on the stories, but instead, look out for proven performance.  Healthy companies that are growing their profit consistently year after year are what you should look for, not here today, gone tomorrow returns.  Patience rewards good investors with ongoing capital growth and dividends.

4.      Invest for the Long Term and Forget the Wallops:  The market in the short term is regarded as a “voting machine” but in the long term it is regarded as a “weighing machine”.

Investing in the short term, the stock market can be volatile, and it is often controlled by the emotions of fear and greed and does not consider the fundamental value and performance of a business.  It is during the time when share prices fall that first-time investors often sell for fear of the price falling further.  Or when a new investor rushes to get in on a deal when prices are already too high with the fear that they will miss out on further gains.

It is best to consider the long-term when investing.  Do your due diligence and research companies.  Share prices follow value.  Those companies that are growing their profits and net worth will rise over time just as the price of underperforming companies will fall

5.      Be Patient: The trademark of successful investors is patience.  Stock markets and individual company share prices can become irrational at times, and it is times like this that investors take notice and act.  If it happens that you can’t identify opportunities to purchase the shares of a great company at a significant discount, then it’s advisable you stay on the sidelines and wait.  Remember, too, that even the largest of crashes recovered in less than a year’s time.  Patience.

6.      Don’t forget you are buying a company: When you are buying shares in a company, you are buying a part of that company.  Ask yourself if you really want to become an owner of this business?  If your answer is yes, then look for good companies with a strong, differentiated market position, one with an ability to control selling prices, one with strong future prospects, one with consistent performance, and one with a well-known brand name. According to Warren Buffett, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

7.      Do your homework: I want you to know that investment inside and out.  How do you learn that?  Homework.  Without homework, all you have is guesswork. There is no special knowledge or training required to do your homework.  Learn to understand potential investments.  It is advisable you consider the value, past and future performance, health, and income of a company or business.  If it’s real estate, learn your neighborhoods inside and out.  What are the average rents?  How many people are moving in and out of the area?  Are there more homes for sale than buyers?  How long is the average home on the market?  Do your homework.  Learn as much as you possibly can and do not, I repeat, do not rely on the information given to you by others.  People lie.  Numbers are adjusted.  It is up to you and you alone to do your due diligence. 

Bottom line: Remember, in financial markets, there is no such thing as getting rich quick. The financial markets are a get- rich -slow scheme and not a fruit machine as perceived by some people. If you aren’t disciplined, you will lose money.  If you are reckless, you can lose even more money.

When you start investing, just start slow.  Learn a little more, then invest a little more.  Be prepared to step into an investment with caution, patience, and discipline.  Stick to the book.  Don’t try anything “new” until you know enough about something that you can make an informed decision. Once you get good at something, it really becomes fun.  The more you know, the better you become at it and the less risky your investments become because you know what not to invest in.

Michelle R Russell

© The Prosperity Process, LLC  

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