To any novice investor, an investment portfolio can appear like a turbulent sea.
As the stock market remains a confusing marketplace, some tried-and-true principles can steer the new investor and prepare the groundwork for long-term success. After the stock market upheavals witnessed in 2018, it seems pretty clear that investors are likely to keep their fingers crossed as we approach the last quarter of 2019.
If you’re a new investor, however, such ups and downs shouldn’t have a significant impact on your investment strategy, at least if you’re looking to invest for the long term. As a rule of thumb: the daily movement of the markets isn’t designed to have a lasting consequence to your investment portfolio.
Here are five tips to a successful investment as the year winds to a close:
1. Buy undervalued stocks
When it comes to money decisions, many new investors allow emotions to influence their actions. This is a perfect recipe for making mistakes. To keep track of how the market is doing, it’s a good idea to set up an automatic deposit into your investment account.
This enables you to contribute without having to worry about how the market is doing.
Planning to invest as soon as you get your paycheck is an excellent way to ensure that you can buy undervalued stocks at the very bottom of the stock market.
2. Diversify your portfolio
Diversification of your portfolio is the art of spreading your investments around to minimize risks.
This practice enables you to reduce the volatility of the portfolio over time. An excellent way to guard your investment against market turbulence is to diversify your portfolio. Ensure to buy bonds and stocks, in both big and small companies from home and international companies.
Consult a financial planner for advice on the right asset allocation for you, based on your risk tolerance and age. Better still, check out spaceship invest to start learning how to invest and diversify.
The most important advantage of diversification is that if one investment performs poorly in a given year, other investments could have played better during the same year, reducing the potential losses of your portfolio.
3. Setting investment goals
Planning for the “when” in your financial goals is a good idea. This is because you need to know when your investment matures.
Many financial goals fall into three categories: short-term, medium-term, and long-term.
Short-term goals (0 to 3 years)
Many short-term financial goals fall under three years. This is because a short period attracts fewer risks. Since you’re planning to spend your savings on short-term goals quickly, you’ll want to focus on liquidity and safety as opposed to growth in your portfolio. Liquid assets are those you can dispose of promptly with little or no loss of value. Examples are Treasury bills,
Medium-term goals (3 to 10)
Choosing what to invest in the medium-term target can be more challenging than deciding to spend on a short-term goal. This is because an investor should create a sufficient balance between protecting hard-earned assets while achieving the profits that can help build your asset portfolio and offset inflation.
Long-Term Goals (10 years and more)
To many people, the number one long-term goal is to achieve financial security during retirement. This means the ability to manage expenses for 15, 25, or even 40 years that you’ll expect to live once you retire from active employment.
Since you’re going to need money for that period, it’s crucial to make your money work for you, and this means looking for a rate of return that beats inflation and lets your investment grow over time.
4. Reinvest your dividends
Reinvesting your dividends is an excellent idea for investors as long as they have another source of income.
This is one of the best ways to grow your portfolio after you’re longer actively employed.
However, reinvesting dividends may not be suitable for everyone. You may need to carefully examine your existing financial situation and future needs before choosing to reinvest as an investment option.
5. Avoiding leverage
Leverage occurs when you borrow money as a source of capital to expand your business’ assets base to make more profit. It is an investment strategy of borrowed funds designed to boost your return on investment. It can also be referred to as the total debt portfolio used to finance assets.
If you are investing for the first time, avoid leverage as it’s best left to seasoned investors and experienced entities. During the early days, it’s unwise to get entangled in terms such as “highly-leveraged” or “debt-equity” ratio.
If ‘you’re new in the investments world, it’s okay to be apprehensive and wonder if ‘you’re making the right decisions. However, in 2019, make an effort and invest. You may find your fears groundless as you watch your stock begin to move up.
Who knows, it may motivate you to diversify your portfolio.