The world of investing can seem intimidating, especially for those just starting out. But with a few key tips, you can navigate the financial markets with confidence.
Here's a breakdown of the essential dos and don'ts to keep in mind:
Do:
Start Early
The power of compound interest is real! The sooner you start investing, the more time your money has to grow. Even small contributions can add up significantly over time.
Invest Only What You Can Afford
Investing should be with extra money, not your emergency fund or essential living expenses. Create a budget to determine how much you can realistically invest.
Know Your Risk Tolerance
Are you comfortable with some volatility, or do you prefer a safer approach? Understanding your risk tolerance will help you choose the right investments for your goals.
Do Your Research
Don't blindly jump into any investment. Research different options, understand the risks involved, and never invest based solely on a hot tip.
Diversify Your Portfolio
Spread your investments across different asset classes, such as stocks, bonds, and real estate. This helps mitigate risk and ensures you're not reliant on the performance of a single asset.
Rebalance Regularly
The weightings of your portfolio will naturally fluctuate over time. Rebalancing helps maintain your target asset allocation and keeps your risk profile in check.
Don't:
Try to Time the Market
Predicting market movements is incredibly difficult, even for professionals. Focus on a long-term strategy and stay invested through market ups and downs.
Invest Based on Emotion
Fear and excitement can cloud your judgment. Stick to your investment plan and avoid making impulsive decisions based on market swings.
Put All Your Eggs in One Basket
Don't invest everything in a single company or asset class. Diversification is key to managing risk.
Chase Get-Rich-Quick Schemes
If something sounds too good to be true, it probably is. Avoid any investment promising unrealistic returns with little to no risk.
Forget About Fees
Investment fees can eat into your returns. Understand the fees associated with different investment options. When comparing the past performance of different investments or funds make sure you compare net return (after fees).
Neglect Your Financial Plan
Investing is just one piece of the financial puzzle. Make sure you have a solid financial plan that considers your goals, budget, and risk tolerance.
By following these dos and don'ts, you'll be well on your way to becoming a more informed and confident investor.
Remember, investing is a marathon, not a sprint. Be patient, stay disciplined, and focus on your long-term goals.
The above blog was written by Reid Mckenzie a financial adviser working for Mckenzie Financial Planning (www.mckfp.co.nz).
The above information is general in nature as is not meant to constitute personalised financial advice. Reid recommends seeking personalised financial advice from a registered financial adviser before making financial decisions.