Always diversify your investments
If you’d invested all of your savings into a company such as Apple or Amazon ten years ago, you’d probably be a very wealthy person by now. Unfortunately, for every investing success story, there are dozens, if not hundreds, of failures that have resulted in enormous losses for the people that backed them.
The solution to this problem is diversification: By spreading your investments across different genres such as retail and technology, as well as varied asset classes like bonds and shares, you’ll expose yourself to far less risk if a company or entire market segment takes a nosedive.
Stick to what you know
Yes, it’s important to diversify, but it’s also essential to have confidence in what you’re investing in. You don’t need to be a retail tycoon to invest in Nike or Adidas, but if you have a background in the industry and keep a close eye on current events, it can help you to make more informed decisions. Investors such as Warren Buffet have been using this strategy for decades to cautiously build up huge and extremely valuable portfolios, proving that the principle definitely works.
Always build up your savings before investing
When you invest any amount of money, you should be comfortable with the idea that you won’t be touching it for a long time. Investing is a long-term strategy, and it can be seriously messed up if you keep cashing in on your gains when times are hard.
With a small emergency fund that you keep topped up, you’ll also have more confidence to make long-term decisions, and you’ll be less likely to either make risky investments or panic and make knee-jerk reactions if your portfolio drops in value due to market volatility.
Don’t be swayed by the latest hype
From Gamestop to various news articles on crypto and NFTs, there will always be another “latest thing” luring inexperienced investors to part with their cash. Are we saying assets like crypto are a scam? Absolutely not, but you need to understand what you’re dealing with, and especially the volatility involved. Always make informed decisions before making any rash moves.
Set realistic expectations
As we’ve previously mentioned, investing a few hundred dollars into Amazon a decade or more ago would have given astonishing returns. However, while these stories can sound compelling, there are plenty of examples of promising business models that have failed catastrophically (Are you old enough to remember pets.com?)
So what can you expect from the average investment? Returns of 6-7% annually are realistic for most people, with gains of 10% if you’re lucky enough to pick the right assets. However, while this doesn’t sound like anything to write home about, your initial lump sum can grow dramatically over time, especially if you continue to make small, incremental top-ups to your portfolio.
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