Money For Lunch – 5 Simple Investment Tips for Beginners

5 Simple Investment Tips for Beginners

May 7, 2016 1:38 PM0 commentsViews: 66

We all want to be savvy investors, boosting our expendable income and padding a nice retirement fund. When the money you’re making now isn’t enough for your long-term goals, it’s time to make smart investments that secure your future.

Image Credits stevepb,

Image Credits stevepb,

Here are our top tips for investment beginners, focusing on striking the balance between risk and return.

  1. Independent Thinking Is More Profitable

The nature of the stock market penalizes herd-mentality, whereby the percentage of the trading population who act on impulse, and are influenced by the media or other obvious trends, always come out with the least returns. This is because of the oscillating nature of the stock-market, where the mean trumps flickering extremes.

That doesn’t mean you can’t make risky investments, but you shouldn’t make the investment du jour, no matter how profitable it may seem. While herd-mentality investors are busy creating artificial booms and busts with impulsive investments, be the one who makes independent, self-determined and highly-researched decisions.

  1. Individual Stocks VS Mutual Funds

Depending on your investment goals, it’s important to decide whether or not you want to use capital markets:

  • Mutual funds are designed to pool money from contributors and make decisions based on the investment theory of the firm. They typically offer small, consistent returns on long-term investment, but give you little control and require high fees.
  • Individual stocks, those purchased by you after research on the companies with the most potential for longevity and profit, can generate much higher returns than the other options. On the other hand, this takes a lot of time and dedication on your part to study and research individual companies.
  1. Recommended Reading Material

Staying informed and educating yourself on the basics of the stock market is your responsibility. Luckily, there’s plenty of periodic reading material to keep you up-to-date with the latest news, as well as thousands of books to help you learn the basics. Here are some suggestions for beginners:

  • The Intelligent Investor by Benjamin Graham
  • Common Stocks and Uncommon Profits by Philip Fisher
  • The Wall Street Journal
  • The Economist

 

  1. Spread Your Investments Out

When you’re ready to start investing, break your initial funding into 4 quarterly purchases over the first year. This will reduce the risk of losing too much at once, and will give you time to adapt and reassess your plan.

Whenever you’re dealing with a large lump investment sum, it’s always a good idea to spread the investment over time, and to diversify properly according to your investment strategy.

  1. Dividend 101

Dividends are provided by strong, stable companies whose stock does not rise or fall very much, and so do not have the capacity for tremendous returns. Dividends are paid as portions of the company’s wealth, and price of the stock, offering added insurance. When the stock price drops, dividends tend to increase, and vice versa. Companies use dividends to entice people to purchase stock despite the slow returns.

Investors are best served to reinvest dividends, providing themselves with compound profit over time. If you are patient, and saving for long-term goals or retirement, consider investing with companies who pay out high dividends.

There’s plenty more to learn, but with these basics under your belt, you’re ready to start investing in your future wealth.

 

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