Investing is one of the most effective ways to build wealth long-term. However, unlike saving, there are minimal guarantees of success, so it’s vital that beginner investors understand the basics and learn how to evaluate different opportunities. Successful investors equate the process to a journey rather than a one-off event.
As such, undertaking a long journey requires effective preparation, including elaborating on the investment goals to focus on. As Volker Hartzsch – an experienced start-up investor with a long history of multiplying investments – knows, it helps to gain knowledge on investment through various avenues, whether it’s through reading books, watching tutorials or taking classes. The factual aspects of finance and investing are a good starting place for a beginner, as they provide an understanding of what works in the market.
Investors who are in it for the long haul and willing to learn as they go would do well to have an investment strategy pegged that aligns with their personality traits. Various behavioural models exist to help investors understand themselves, and some focus on an investor’s level of confidence and method of action as the two main characteristics. Depending on the mix of attributes an investor has based on these two aspects, they can learn more about how they choose to approach investing.
Considerations Before Investing
While investing – particularly for beginners – can seem overwhelming, it pays to learn the basics and consider the following aspects:
- Investment Strategy: An investment plan helps to put goals into perspective, while elaborating on the how and when of achieving them. With a plan, decisions are more likely to be based on sound reason rather than emotion, which can be a strong factor when an aspect of a portfolio underperforms or the market conditions aren’t favourable.
- Risk Tolerance: The level of risk an investor is comfortable with is key to understand, as depending on the risk profile, some investments might not be suitable for a beginner. Furthermore, an investor should consider how much time they’re willing to give themselves to achieve their investment goals, as this can also factor into the level of risk they’re willing to accommodate in their investments.
- Investment Options: Beginners can choose to invest in different asset classes such as bonds and shares or opt to focus on a single option such as real estate. The former allows investors to diversify their risk so that one investment’s losses can be levelled out by gains in other investments. The latter strategy can guarantee steady income, but a market downturn can be devastating to the investor’s returns.