Investing 101 Part 2

Never Follow Your Investing Beginner's Heart

The human heart is described as the center of our emotions. Emotions are one of the worst enemy of an investor, they cloud the mind and make him take decision he might regret.

Investing beginner are at risk of making emotion based decision because they have never gone trough some nerve wracking experiences. You need to make sure that all of your decision are based on solid, factual research. A lot of newbie tend to panic and sell their stocks when they see the price drop, I’ve been in that situation as an investing beginner. Although it might be a good decision, it might be a very bad one, it might be a good time to buy more shares! In that case you should never let your emotion decide for you, always do your homework before making a decision.

Goals and Expectations of an Investing Beginner

You need to set up a goal, both in terms of money and time. Are you investing to buy a house? For your retirement?

This goal need to be reasonable, you cannot expect to make a few $1000 per month if you only start investing $1000. However, if you want to make $200-300 for the whole year with an investment of $1000, then it’s more realistic. You will see people claiming they made an insane amount of money in a very short amount of time with their investment, it’s not impossible for seasoned veterans to be able to get lucky. But, as a newbie in the Investing World, you cannot expect the same thing. If you want, let’s say, $1,000,000when you retire, you could do some simple maths to give you an idea of the amount of money you need to invest, and the risk you might need to take, to reach that goal.

Long Term Investment

There are 2 types of investment you can make, a short term one and a long term one.

As an investing beginner, you are investing your money for time growth, it will take quite some time.

Compounding works magic over time, not in a short amount of time. Investing your money for less then 5 years might not be a good idea if you want to make any significant growth. It is true that there are instances where you can have a nice short term growth, but smartly investing money in the long term is the best option.

Being in the long term doesn’t mean that you need to buy some stock and hold them forever, even if there are some stock you might hold for a long time. It only means that you are in the Investing world for the long term. You need to do your due diligence all the time and remove stocks that are not performing well.

Diversity is the Key

If you’ve started your research already, you have probably heard this piece of advice over and over again.

But because it’s one of the basic tenant of smart investing, I will keep repeating it. And it’s also something that I have experienced first hand. Since we cannot know for sure which stocks are going to rise or fall, it make sense to diversify and have different types of investment, hold stock from multiple companies in multiple industries. This is all to reduce the amount of risk in your portfolio.