Are you thinking to start investing? Are you an active investor already? These six tips will improve both your return and self-confidence.
Do your research first
Go down to the routes and do your background research, that will help you to make the right decisions on investments. Don’t rely solely on Google; try to use more regional resources. Proper research can help you make smart and informed decisions, which lead to higher yields and more excellent protection. Sometimes you may notice things that the others did not, and grab your benefits first. If you are thinking of buying stocks or bonds, you can start by reviewing the company’s financials. Local resources may provide you with more detailed information. For example, try DueDil for all possible details on UK businesses, or a similar local resource in the country of your asset origin. Don’t feel ashamed of using Google Translate to understand the critical material, and you will find hidden hints and drive better results out of it. Check the background of the company, its founders and the management. Quietly added anonymous online reviews might be less important than the information about the company, as its local government discerns it. You can use all of that to conclude whether the company or asset is worth investing in, or not.
Diversification is a must
Proper diversification of funds ensures your balance even though some of your ventures fail. Sharing is caring, and it also works in the investment world. Smart investor splits capital among different regions as well as various asset classes. Imagine that you invested the same amount in two different assets, and one of them grows by 10%, but another falls by 5%. Had you only invested in the second one, you would have lost money rather than advance it. Keep watching the assets in your portfolio and switch to a more stable one if you feel that it is not durable enough for you any more. Investing in public instruments like stocks and bonds can be easily observed on the Yahoo Finance portal. The alternative market, in contrast, is not that much transparent. Before you invest, check that you can get enough information on your assets to make timely decisions. A well-diversified portfolio can diminish the more significant risks associated with alternative investments.
Avoid borrowing to invest
Borrowing to invest can be a dangerous strategy. It leaves you exposed to high risk. If your venture doesn’t work out, you will face the debt of your own to deal with. And if you end up with massive debt, and default, you will ruin your credit rating. Make sure you don’t have a variable rate loan, where the interest rate and the payments may rise. What if you took a loan at 2% interest rate, and it jumps to 4%? – you’ll end up paying more, resulting in a significantly lower ROI. Still, borrowing to invest is not necessarily such a bad thing if you are sure that the returns are higher than all the costs of the investment, and some other more stable assets cover you. If you decide to borrow capital to use it for investment, make sure your return from investments is as frequent as your own debt repayment schedule, also is higher than that.
Beware of hidden fees
Fees lower your return. Any charges you pay to your bank, a broker or the platform you work, as well as the tax you pay on return, impact negatively on your profit. The service providers never mention some fees, which exist in their price lists. Start checking the public materials for hidden fees, and don’t be afraid to ask your service provider directly if there any. There is an exhaustive list of different types of fees for different investments. For example, when buying shares of a stock, there is a front-end load and when selling shares there is a back-end load, meaning fees are incurred every time you want to buy or sell stocks. The more you move money around, the more you will end up paying. There are commission fees to pay brokers for their services. Just like compounding gives exponential growth to long-term investors, high costs do the same in the opposite direction. Companies like Transferwise promise not to have any hidden fees. They always show you a fixed rate upfront. Although, when dealing with more significant amounts, the competitive advantage over others recedes. Also, lots of investors are unaware that after selling a stock that you lost money on, you can offset the taxable gains. Which reinforces the first point about doing your research before investing.
Taking inflation into account
Inflation takes an invisible cut of your profits by decreasing your purchasing power. If for example, inflation rises by 3% and you gain 8% returns from the investment, you will earn only 5% more. You should always keep an eye on the inflation rate in your country or region to make and update a solid plan and be able to calculate if the return on your investment is good enough to defeat inflation. There are many types of investments, but there is none except Quanloop who offers inflation refund once a month. Check for the CPI changes on Eurostat page. If you had kept your money on the bank account, the 0.9% inflation for the last month would deduct 9 euro in value from each of your 1 000 euros. The bank would never compensate you that loss–––but Quanloop cashback programme would refund it in real cash instead. For more risk-averse investors that want to hedge against inflation, there are many different asset classes to choose from. For example, commodities, which includes precious metals, electricity, oil, beef, to name a few. Via exchange-traded funds, you can invest in a broad spectrum of commodities.
Stop regular withdrawals
If you continuously keep pulling your money from investments, you won’t be left with much of anything in the long run. The compound effect helps your earnings grow exponentially every year, given you don’t pull out every time you make a small profit. If you withdraw your money, you will be filled with regret when you calculate and see the difference in what the compounding could do versus earning from the net capital you kept on your balance.
Investing in both public and alternative instruments has always worked better together. Just remember the rules: your portfolio must always be diversified, you never borrow to invest until you are sure what you do, you are aware of all the costs and taxes and your return after the tax and all the fees is higher than the inflation, and you apply the compound model as much as possible.
