What successful investors do?
Beginner investors always struggle with the overload of information when it comes to investing. Are you a beginner investor and feel the same? Well, I cannot blame you. But I think more than any tools or information, it is the right mindset that you need to adopt from the beginning. And that is exactly what we are going to talk about here.
This piece is for you if you are not looking to quickly get rich but rather build your investment foundation and financial well-being correctly. Since we will be talking about general and helpful tips that should help your investment life, no matter what year or financial situation we are in, I think this blog is also helpful for people who have experience with investing before. Are you ready? Let’s get started.
We will be listing 2 very important rules for beginner investors to have a better start in their investing journey.
You do need to be aware that guessing and investing are two separate topics. There are a lot of people who are just guessing and randomly picking stocks. THAT IS NOT INVESTING.
When you are investing, you are making an educated decision about a financial transaction. Your knowledge to make this decision might be limited now as a beginner investor, but if you put the effort to learn about the common pitfalls and technical knowledge of investing, then you are on the right path to becoming a better investor down the road.
On the other side, we have people who might seem knowledgeable in investing, but they are far from it. You hear a lot from these folks; they are usually pretty loud about their investment decisions. They tell you all about how the latest trends in cryptocurrencies in the future. period.
They also predict the rise and fall of the stock market based on their own hunch. Or they might like a certain company and think that investing in its stocks is also a smart decision. well, that is just a very wrong mindset.
The thing that you need to know is that there is room for this type of investing which is based on guessing. Part of your investment can be allocated to make this type of guesses and do random stock picking; and who knows, some of them might pay off as well!
But don’t get fooled about the outcome just because good things happened for you or one of your friends. It was just a guess and trust me, if you keep on guessing, the chance of failing gets higher and higher. And that is something that you as a beginner investor should stay away from.
Keep in mind that the past does not predict the future. This might seem like common knowledge, but you have no idea how many times investors get into its trap.
If the stock market has performed in a certain way, it does not guarantee that it will perform the same way in the future. There is no guarantee for it. In the last few decades, we had an overall good return on stock market investments, but that might not reflect what will happen in the near and long future.
When you are aware of this, you will make smarter investment decisions. You will diversify and do not put all your investments in one basket. You buy a mix of stocks and bonds.
For the stocks you try not to only rely on guessing if few stocks will go up or down; you invest in index funds which in simple words are a low cost of buying a diversified list of stocks.
For bonds, you try to invest in reliable bonds that can protect you from inflation. One option is Real Estate Investment Trusts (REITS) which are companies that own properties and generate rent and income for them; so by investing in them you protect your investment from inflation and you also do not end up betting all your money on the stock market which by now we know can go down in future.
What we have learned together here. I really want you to learn these by heart:
- There is a big difference between guessing and investing
- The past does not predict the future
Adopt and memorize these two rules and you should have a great start to your journey as a beginner investor. Drop a comment if you had any other questions.