Your first investment into stocks and shares might seem a little daunting. However, you are not on your own if you have these feelings; most new investors experience the same.
You should be aware that investing in shares is a sound long-term investment, and hopefully, knowing this will help you take your first dip in the investment pool. For the majority of people, they are glad they did.
To help calm the nerves of new and inexperienced investors, you can do a few things. These three principles will keep you calm when making decisions about your investments, avoiding any knee-jerk reactions that can cause financial damage.
Decide Upon The Amount You Are Content With Investing
Your capital is precious, and you do not want to risk it all through an ill-conceived gamble. You need to come up with a figure that you are comfortable with investing.
Two methods are generally used to come up with this figure. The first is to decide on the amount of returns that you want to get from your investment, and then work backward to give you the starting point figure. For example, if a decent income for your retirement is your investment goal, then you could calculate how much money you need to save each month to achieve that. The same principle can be used for large capital purchases, such as houses. There are plenty of apps and online calculators to help you work the figures out.
The second method is to use your budget to work out how much you can afford to invest. You need to prioritise your essential living expenses such as rent or mortgage, food, commuting costs, utilities, etc. Of the leftover money, you can use some of it to start building up an investment pot.
Being able to set aside only a small amount of money every month is fine. It just means that you will be limited to investing three or four times each year. A successful investment is about taking things slow and steady, not rushing into things, and risking everything on one roll of the dice.
Taking your time and developing an understanding of the capital you can invest will make you more comfortable about investing it. Make sure that it is not money you will be relying upon over the next two or three years. With this understanding, you might already start to reduce the nerves you might have about your first investment.
Conduct Research Into The Companies You Are Considering For Investment
Investing can seem most daunting when you do not have any idea about what you are investing in. Knowledge dispels fear, and researching the companies you are considering for investment, will give you the knowledge you need.
As well as making you feel more comfortable about your investments, your research might uncover some hidden gems that you may not have discovered otherwise.
So, how do you go about researching a company for investment? It is challenging to answer this question in such a short article, so here are a few questions to ask yourself:
- Is the company profitable? There are plenty of experienced investors who want to invest in high-risk, not yet profitable companies to make potentially huge profits. However, to maintain sanity, new investors should stick to profitable companies.
- Is the company’s leadership trustworthy? It is ultimately the people that run the company that you are investing in. Choose a company that is free from scandal, and that has a safe and trustworthy leadership team.
- What are the experts saying about the company? This advice can be a tricky one to take, as many ‘experts’ have vested interests. However, it is advisable to get a range of opinions on the company from several different expert sources. Then, you can make your mind up.
As we already inferred, there is a whole host of research that you can do on a company before deciding to invest in them. Asking yourself these three questions is a good starting point, and once you have done this, you will undoubtedly feel more confident about investing.
Remember, it is your money that is at risk. So, take your time in doing your research, and don’t be swayed from doing it by seemingly one-off opportunities.
Think Long-Term, Avoid Chasing Quick Gains
We are convinced that investing should be a long-term strategy. Yes, there are a lucky few who have made quick returns from short-term investments, but this tactic generally leads to lost capital.
The issue with short-term investments is that the investor looks at the market over increasingly shortening periods. Eventually, the probability of market movement up or down becomes 50%, the same odds as tossing a coin!
On the other hand, taking a long-term approach, and the probability of you turning a profit on your investment increases. The performance of the FTSE 100 following the Global Financial Crisis is a good example. It is now trading higher than it was at its peak just before the crisis hit, and the market crashed.
Taking and maintaining a long-term approach to your investments, you will likely discover that you are much less nervous about your investments. This reduction in nerves will be because you invest with a more secure strategy, with a better chance of giving you positive returns on your investments. There are no guarantees in any investment, and you should be aware of the risks. However, long-term investing, we believe, reduces these risks.
Even if you adopt a long-term investment strategy, there is one thing that will still make you nervous. Continuously checking your investment value and share prices every day will mean that you are exposed to every movement up and down. This type of behaviour can lead to you making rash decisions about your investments and also cause you unnecessary stress.
Making your first investment can seem like a nerve-racking experience. However, the sheer fact that you are reading this article means that you are setting out to get the knowledge that will settle those nerves.
Once you start investing, there are significant returns to be had, and hopefully, the tips you’ve read here will help you get started with your first investment.
- Decide Upon The Amount You Are Content With Investing.
- Conduct Research Into The Companies You Are Considering For Investment
- Think Long-Term, Avoid Chasing Quick Gains
Following these three principles will reduce your nerves, make your first investment seem much less daunting, and increase your chances of investment success.