Investing can seem like a daunting task for new investors. It is normal for rookie investors to begin with many questions, such as how to get started and what to invest in.
While I can’t help to answer all your questions when it comes to investing, here are 10 tips that can help new investors get started in the world of investing in 2022.
1) Draw a Financial Roadmap
Before you make any investment decisions, it is important to have a reality check on your entire financial situation. It is the perfect time to plan your financial goals and risk tolerance for the new year as we approach the end of 2021.
2) Start Investing Now
The biggest barrier for new investors is simply getting started. There is no perfect time to invest your money. However, the earlier you start, the better. For one thing, you would need lesser money to reach your financial goals the moment you start investing. Additionally, the compounding effect is also another reason why you should start early. Even if you are a college student, it is okay to start investing. Personally, I started my investing journey at the age of 19 years old. Do not be afraid to start now.
3) Look at Your Own Finances
Everyone has different needs and commitments. Someone who has more commitments, for instance housing loans, student loans, children to feed or parents to take care of, would probably not have much to invest. Your investing goals must be realistic, taking your current financial situation into account. Ensure that you have enough money for your regular monthly bills, loan payments and other commitments before you begin investing. You don’t need to start investing with a lot of money.
4) Have an Appropriate Asset Allocation Strategy
Asset allocation is important to diversify your risk. By investing in more than one asset class, you will reduce the risk of losses. Historically, the returns of the three major asset classes – stocks, bonds and cash – have not moved in tandem. The market condition such as interest rate, economic growth and other factors, affect each asset class differently from one another. By having an appropriate asset allocation strategy, you can mitigate the downside risk.
Here are the five asset allocation strategies that I’ve talked about in my previous article.
5) Start with Broad-based Investments
There are a lot of ways to invest, but the simplest way for investors to build their investment portfolio is through broad-based mutual funds and Exchanged-Traded Funds (ETFs). These funds pool the money of many investors to purchase a variety of securities, providing you with immediate diversification when you start investing.
6) Keep Your Costs Low
While we don’t have a control over how our investment performance would look like, we have full control on the costs involved. For beginners, it is important to pay attention to the costs involved. This is one of the reasons why ETFs are good for beginners. Morningstar’s latest fee study shows that index funds have an average 0.15% expense ratio while actively-managed funds average at 0.67% expense ratio or higher. Over the long-term, these higher fees could potentially eat into your investment returns.
7) Consider Dollar-Cost Averaging
You can protect yourself from the risk of investing all of your money at the wrong time by using the dollar-cost averaging strategy. Through making regular investments with the same amount of money each time, you will be able to make more investments when prices are low and less of the investment when prices are high. Individuals that typically make a lump-sum contribution to their investment may want to consider “dollar cost averaging” as an investment strategy, especially in a volatile market.
8) Look Beyond the Media Headlines
It is very easy for new investors to be afraid of media headlines, such as “Tech Tumbles”. However, it is important to understand that both the media and investors have very different agendas. The media’s main goal is to garner views, while an investor’s goal is to grow their wealth over time. So, while the media helps to provide latest updates, investors need to keep a level head and make decisions based on their own personal investment strategies.
9) Study Your Portfolio
It is paramount that you keep track of what you are investing, by studying your portfolio consistently. While your portfolio might be suitable today, it might not be the same tomorrow. By knowing what you have, you will know what necessary changes need to be made going forward. These changes could be due to changes in market movement or an economic climate shift. My personal practice is to revisit my investment portfolio every six months.
10) Make Investment a Lifelong Learning Process
At the beginning, you will have to study a lot of basic terminologies of investing. It is important that you don’t forget about the other details which include diversification, portfolio optimization and market efficiency. You will also need to have a better understanding of fundamental analysis and technical analysis skills as you continue along this journey.
Aside from that, it is also okay to ask for help. In the age of technology, there is so much information that is made available for you on the internet. Moreover, it is also advisable to speak with a financial advisor who can offer his or her professional views on investment strategies. While you may disagree with them, it offers you a set of perspective outside of your box. One of the dangers in investing is when one lives in their own bubble.
Bottomline: Start Your Long-term Investing Journey Today
It doesn’t take a PhD or a genius to start investing. The first step to long-term investing is to start investing now. However, I advise fresh investors to think long-term, and avoid being obsessive with the daily market movement or the latest hot stocks in the market. Investing is a lifelong journey that will help you grow your wealth and achieve your financial goals.
