If it were easy to make money from investing, everyone would be doing it. As it turns out, that’s not the case. In fact, a lot of retail customers can find themselves in severe trouble when they fail to observe prudent investing advice. They jump in at the deep end, hoping for the best, without really understanding how the financial world works. It’s a disaster.
In this post, we take a look at some of the critical decisions you should make before investing any of your money.
Mix Your Investments
While some investors like Warren Buffet and Peter Thiel can make a killing on a small handful of companies, they are very much the exception to the rule. They’re like the Mozarts and the Shakespeares of the financial world, able to see hidden trends that nobody else can perceive way ahead of time.
In that regard, though, they are very much ahead of the curve. The average person simply can’t emulate their success. It would be foolish even to try.
If you’re just a regular investor, your best bet is to build a mix of assets. That way, you’re eliminating a lot of your risk in one fell swoop. If some of the underlying assets go down, it won’t matter as much because you’ll make gains on others.
Maintain An Emergency Fund
We all saw what happened in the markets earlier in the year. The Dow fell by over 30 percent from its peak, bottoming out around 19,000 following the dire news about COVID-19. And a lot of people lost their money.
Equity markets are always going to go through cycles of joy and despair. While the stock market is a rising tide that lifts all boats, there are serious problems associated with it too. You don’t want to be the person who has to pull money out of the market while it is crashing just to meet your day-to-day expenses.
The trick here is to have an emergency fund in cash that is ready to go so that you don’t have to pull your funds from the market when it is down. In other words, emergency funds let you avoid real losses.
Use Derivatives To Your Advantage
You no longer have to buy stocks directly anymore to make money on the markets. You can also buy derivatives – financial instruments like CFD options that link to the underlying equity.
You can often make a lot of money using these instruments, especially when the market is volatile. What’s more, you can enrich yourself regardless of whether the market is going up or down, which isn’t usually the case for direct equity ownership.
Rebalance Your Portfolio Over Time
Even if your investment goals don’t change, the types of companies you need in your portfolio will. Remember, a lot can change in ten years. In 2010, GoPro was one of the hottest stocks on the market. Now people barely talk about it.
Rebalancing your portfolio simply means ensuring that it continues to serve your purposes.
Note: This is a collaborative post