5 Tips for New Investors
By Kevin Faber
Investing. What is it? A hobby for successful businessmen? Informed gambling? Before we get ahead of ourselves, let’s lay down the definition.
Investing is the act of committing money or capital to an endeavor (a business, project, real estate, etc.) with the expectation of obtaining an additional income or profit.
Who doesn’t want to start investing and making a profit? Before you jump into the sink-or-swim world of investing, here are some points to consider. It could make you a lot of money if you’re good at it. These may all be true, but you won’t get anywhere unless you make the right investment. So what’s a good investment?
Invest in ventures that have low risk and high return
Fixed investments are almost always the safest and most consistently profitable kind. Investing in a company, however well known or successful it is, is not as safe as an investment in something stable that brings in a steady, fixed profit. Owning and renting out apartments, for example, is a great investment.
Rental properties provide a steady stream of income and, depending on how much you charge for rent, become profitable almost instantly. Do a little bit of regular maintenance, treat your tenants well, and see big dividends.
Make an investment that involves calculated risks
When it comes to investing, taking risks comes with the territory. Invest with the worst case scenario in mind and decide beforehand if you could cope financially should the worst possible situation become a reality.
If failure would doom you financially, you should probably reconsider the investment. Taking calculated risks means you have considered the possibilities before taking the plunge and understand both the consequences of both success and failure.
Invest in things that appreciate in value, not vice versa
Most agree that buying a brand new car early on in your career is a terrible investment. The second you drive off the lot, your car decreases in value. With each additional mile you put on the car, its value drops. Unless it’s an antique, your car will likely never be worth as much as when you first bought it.
You might consider investing in something called human capital. Human capital is a measure of the economic value of an employee’s skill set. It’s about investing in people.
Simply put, you should pay money to people who could make you even more of it. Whether it’s an investment consultant, one of your employees, or even your college-attending son, putting money into people who will produce incredible value is always a slight risk, but usually an incredibly intelligent move.
Think you have to have thousands of spare dollars lying around to invest? Think again. There are hundreds of small ways you can invest to get your feet wet and become educated and ready to make bigger investments in the future. Consider using an investment app like Stash Invest that allows you to invest very small amounts of cash in safe areas.
Don’t put all your eggs in one basket
It’s tempting for beginning investors to want to throw large sums of money at a venture that looks promising. It’s critical to remember, however, that even the most experienced investors don’t know perfectly how well each investment will turn out.
Investing is a lot about trial and error. You don’t want one small error to become catastrophic. When you begin investing, place small amounts of money in different areas. See how it works, and then consider placing larger sums in the areas that produce the biggest return.
Becoming a strong investor is a process. It not only takes a strong financial base to start, but also a certain depth of financial experience and investment IQ. Start small and slow and build your way up and you’ll be on your way to a happy life as an investor.