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last updated 25/05/2022

How to invest like a Pro

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Most of us associate investing with wealthy people and never consider that those of us who are not wealthy can also make investments and create wealth for ourselves.

But that’s a misconception belied by the host of investment options available today for anyone interested in creating financial independence.

One example is Elle Kaplan, CEO and Founding Partner of Lexion Capital Management. She made her first million before she turned 30 by saving from every paycheck and growing that through investing.

She told Robert Farrington of The College Investor: “Don’t think of saving as budgeting or penny-pinching – think of it as paying your future self.” s

Why do most people hesitate to invest?

Apart from the fact that a large proportion of people feel they don’t have the extra cash to put away, the whole investment scene is intimidating.

What investment options do you choose and who do you trust? Do you need to pay an expert to help you and how do you know you’re not going to be ripped off? And what if you lose all your money?

So, a lack of knowledge and of trust as well as the fear of losing money keep people from putting money aside for a more secure future.

The thing is, you don’t need a financial advisor; you need financial education.

Think about it:

you can never pay a financial advisor enough to care more about your money than his own. You have to assume that mantle yourself.

Tips for the new investor

  • Develop some level of financial expertise

You need to become financially literate so you have the knowledge and confidence to save and invest money for your future. You can gain financial know-how you can:

Read books on personal finance. There are loads of books on the market about personal finance. Read a few to get a wide perspective.

Read personal finance websites. This is a great resource for anyone wanting to start out as an investor. Search for people who made their own fortunes through investing.

Many of them are dedicating their time and effort to teaching others to become wealthy.

Listen to financial podcasts. This is another great resource. You get to listen to experts and lay investors on every possible financial topic, the latest financial news, market interpretations, and more.

Subscribe to financial newsletters.

Many investment websites and financial news sources online offer newsletters, some paid and some free. These can alert you to the latest trends and market movements. They also feature valuable expert advice.

Do an online financial literacy course. For a solid foundation in financial education, you can consider doing an online course. Look for providers that have partnered with leading institutions and financial experts to create up-to-date financial training.

  • Start early

This point cannot be stressed enough. The earlier you start investing, the better. When you start putting money away in your twenties, the investment period will be at its maximum.

It is simply cheaper and easier to save for retirement when you are in your twenties versus starting later. Experts illustrate this point with simple math.

If you put away $3,600 per year starting at age 22, you’ll have $1 million at age 62, assuming an 8% average annual return. However, if you save the same amount starting ten years later, you won’t have $1 million by 62; you will need to put away $8,200 per year to have $1 million at age 62.

  • Stick to investments you understand

When it comes to investing, you have a confusingly vast choice: stocks, bonds, EFTs, mutual funds, and more. In addition, there are different investment strategies to consider.

Experts advise avoiding being tempted by high-growth stocks and building a solid portfolio by investing in proven, established companies.

They advise beginner investors to invest in companies whose products, services, and business models you understand.

For starters, you can consider buying stocks in Amazon, Meta, Apple, Alphabet, Disney, or Microsoft. It is not too complicated to understand their products, services, and revenue streams.

Avoid investing in obscure enterprises with mysterious revenue streams.

Even the king of investments, Warren Buffett, avoids investments in companies he doesn’t understand well, so there are not many high-growth technology companies or biotech stocks in his portfolio.

  • Diversify your portfolio

This is a basic investment tenet.

This investment principle comes down to not putting all your eggs in one basket. The purpose is to spread your risk so that the performance of one investment doesn’t affect the performance of the entire portfolio.

You can diversify your portfolio in two ways.

You can spread your investments across different asset classes and invest in bonds, real estate, stocks, etc. Or you can make different investments in one asset class. For instance, you can stick to stocks, but buy stocks from different companies.

  • Commit to a buy and hold strategy

Buying up stocks and selling them quickly is tempting, but a buy-and-hold strategy is better.

With this strategy, you choose quality stocks and keep them for as long as possible to allow them to gain value over time.

If you follow this strategy, you are in excellent company.

Warren Buffet doesn’t choose stocks because he expects their prices to go up soon or even in the next year or two; he buys stocks because he wants to own those stocks for a long time. In fact, his attitude is that he wants to own those investments forever.

This quote expresses his attitude in this regard: “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”

  • Develop a detached mindset

A basic investment principle is not to be emotional about your investments and above all, not to jump in and get rid of stocks when the market crashes.

The markets crash and correct all the time – think back to 2008 and the pandemic. Every time the markets recovered.

It is human to panic and get rid of investments when the market takes a dive, especially if everyone else is doing it. The thinking is to sell before the prices drop any further. In fact, when prices are low, it’s time to buy, as long as you buy quality stocks.

According to Buffet, the most important quality for an investor is temperament, not intellect.

  • Don’t follow the crowd

This is important advice for beginner investors.

When you do your research online and get the impression that the general thinking is to invest in a certain stock, resist the temptation to follow common wisdom. Don’t buy certain stocks just because everyone else seems to be jumping on the bandwagon.

Experts advise that it’s best to keep your own counsel.

  • Understand value investing

Value investing prioritizes paying low prices for investments relative to their intrinsic values. In other words, you buy at a price that is lower than the real value of the company’s stock.

With this investment strategy, you invest in companies with intrinsic values that are higher than what the stock price indicates. These investors bargain on the expectation that the market will eventually realize the value of the company and reward it and investors with a higher stock price.

Investments for beginners

If you are a new investor, here is a list of investments you should familiarize yourself with.

  • A 401(k) or other employer retirement plan

If your employer offers a 401(k) or another retirement plan, it’s an obvious place to start saving.

With these company-sponsored plans, you contribute and your company makes a matching contribution, which is free money for you. The best long-term option for you is to match your employer’s contribution. At least work towards that aim.

  • Index funds

An index fund is a type of mutual fund that follows the performance of a specific stock market index, like the S&P 500.

Because they eliminate professional management, index funds can charge lower fees than actively managed mutual funds. They are a fairly safe investment because they tend to match the long-term performance of their underlying indexes.

  • Mutual funds

A mutual fund is a range of investments in one offering. Investors buy a diverse collection of stocks and bonds in one transaction. This diversification makes index funds less risky and ideal for beginner investors.

  • Bonds

Bonds represent a loan to a company or government entity. Bonds pay out with interest after a fixed time. Bonds are quite safe as you know what you will earn when. But keep in mind that bonds are not the most profitable investment you can make.

  • Stocks

Stocks are potentially more profitable, but they are also risker than bonds. Stocks represent a share of ownership in a company. Stocks, also known as shares or equities, are essentially partial ownership of a company. To invest in stocks, you must make use of the services of a stockbroker.

  • Exchange-traded funds (EFTs)

An ETF is a bundle of investments like stocks or bonds. With EFTs, you can invest in a range of securities in one go. ETFs often have lower fees than other types of funds.

You can also get commission-free EFTs. ETFs are traded throughout the day and you buy them at a share price, which can fluctuate throughout the day.

Automated financial solutions

Investors, both experienced and new, increasingly make use of automated investment platforms.

Also referred to as robo-advisors, these solutions are algorithm-based financial advisory systems that can evaluate an investor’s current financial situation and recommend an appropriate mix of investments suited to their personal circumstances.

Due to low overheads, you pay much lower fees than you would pay human investment managers. The use of a robo-advisor costs around 0.25% to 0.50% of your account balance per year, and often you don’t need to invest a minimum amount.

Robo-advisors are a great way for beginners to start investing because they do most of the work for you and don’t cost a lot. Some robo-advisors are entirely automated, while others involve humans.

The thinking behind robo-advisors is that these algorithms take the emotion out of investing and provide investors with better returns for a lower cost compared to human advisors.

Investment apps

One of the top investment apps ideal for novice investors is Tykr Stock Screener.

This is a phenomenal app that takes the guesswork out of investing. In so doing, it reduces investment risk, and streamlines investment management.

It is also an education platform that teaches you about the stock market, the fundamentals of investing, and provides suggestions on what stocks to buy, sell or keep aside as an option for later.

The platform allows users to browse a staggering 30,000 U.S. and international stocks. For every single stock, Tykr tells you if it would be a good buy, if it’s overpriced, or should be watched. Each stock also carries a safety score indicating how safe it would be to invest in.

The best benefit of the app is a Margin of Safety (MOS) it provides investors to increase their returns and reduce their risk.

Other investment apps for beginners include E-Trade, Acorns, Stash, SoFi Invest, Invstr, and  Merrill Edge.

Final thoughts

Obviously, it’s impossible to cover the complexities of investments for beginners in one article. Suffice it to say that to be successful at investing is within everyone’s grasp.

You can either do the homework, educate yourself and become an investor in your own right, or you can leverage the help of technology and invest in a robo-advisor or an investment app.

If you consider buying stocks, remember the advice of the most successful investor of all time: buy shares in quality companies at a reasonable price and hold on to the shares for as long as the company remains successful.

This way, you’ll experience some volatility over time, but in the end, you’ll reap excellent investment returns.

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