Investing can be intimidating, especially when you’re doing it for the very first time. It’s easy to get confused and overwhelmed when trying to understand financial terminology and many new investors worry about making a false move. If you’re nervous about buying bonds, commodities, mutual funds or stocks, here are five tips that’ll help you get a grip on the financial markets.
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1. Diversify Your Portfolio
This is probably the second-oldest piece of investment advice in the book, after “buy low, sell high.” But every seasoned investor knows that diversification is critical. On the most basic level, it means that you’re not putting all your eggs in one basket.
By investing in multiple types of financial products across multiple industries and company sizes, you can reduce your investment risk and protect yourself from market fluctuations. So if one of your investments loses value, the other assets in your portfolio could still perform well.
One easy way to diversify is to invest in mutual funds, which allow multiple people to collectively invest in stocks, bonds and other kinds of securities. To ensure that your funds are truly diversified, you’ll need to make sure that the ones you’re buying have assets spread across multiple sectors.
2. Dip Your Toes in First
Putting lots of money into a first investment can be scary. After all, you’re using your hard-earned cash and if the price of your investments falls, you could lose lots of money. That’s why it might be wise to initially invest a small amount of money. Over time, you can gradually put more money into the market.
3. Do Your Research
You don’t have to be a financial genius to understand investment performance. And while it’s true that what happened in the past isn’t guaranteed to happen again in the future, looking at trends and doing some research can help you choose the best investments to include in your portfolio.
If you’re interested in investing in mutual funds, for example, you can read over fund prospectuses. While fund managers might try to make their products look as appealing as possible, they’re required to present all of the facts. If you’d rather invest in individual stocks or bonds, there are similar documents that you can review.
4. Don’t Get Spooked
Investing involves taking on some risk. It’s a gamble, so it’s best to be prepared to deal with some uncertainty.
If the value of your investments falls, it’s important to avoid panicking and selling them off right away. Likewise, if you buy a security there’s no guarantee that you’ll be able to sell it quickly and make a profit. Investing wisely involves taking market fluctuations in stride and maintaining realistic expectations.
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5. Remember You Won’t Be a New Investor for Long
The uncertainty you feel when you first begin investing isn’t going to last forever. And it’s okay if you’re afraid to get started. Keep in mind that everyone makes bad investments from time to time and even Warren Buffett has regrets about some of his past mistakes. As you become more familiar with the markets, you’ll be able to grow into a more confident investor.
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