Becoming a new investor can be a worrying process. It entails all sorts of difficult tasks: from parting with your cash the first time you purchase an asset to keeping your emotions and fears in check as you navigate the inevitable ups and downs in your chosen market. Becoming an investor does require a lot of skills and abilities.
But that’s not a reason to avoid the sector altogether. With Britain’s financial markets so big that they contribute over a hundred billion pounds per year to the economy, it’s clear that many people have made a success of investing – and there’s no reason why you can’t be one of them provided you approach the job in the right way. This article will provide some top advice on how to enter the investment world.
Speak to an advisor
In a world where investment accounts can be opened in a matter of minutes with just a smartphone or a laptop, it’s clear that there’s no strict requirement to speak to an expert before getting started with investing. However, there are still some advantages to speaking to a financial advisor prior to getting started.
First of all, an advisor is often able to grant access to financial products which you might not be able to find either easily or at all online, through exclusive deals. They can also provide handy advice on specific asset classes, including tips for trading CFDs or explanations for common stock trading terms.
But there are also other benefits. Mistakes are made all the time in the investment world: whether it’s caused by timing problems to a misunderstanding of risk and how to manage it, people sometimes lose part or all of their capital. By at least running your investment plans by a qualified and licensed financial advisor before pressing ahead, you can reduce the risk that it will happen to you. Think of it as a way of paying to be educated about bad decisions in order to avoid making them yourself!
Train your brain
You’ll also need to ensure that you have the right mindset in place before becoming an investor. Often, the value of investments can fall over time before correcting and going back to normal – or, indeed, performing even better than before. Take the example of “Black Monday”, which happened on the stock markets in 1987. In the months that followed, an investment which was previously worth the equivalent of £10,000 dropped to somewhere near £6,000 – but in ten years’ time, it had risen again to a much higher point of around £32,000!
As a result, it quickly becomes necessary to train your brain to work in a particular way. If you’re someone who worries a lot, for example, you’ll need to make sure that you’re able to stick to a strategy without making rash decisions. Closing a position because of a sudden downturn, for example, is likely to mean you’ll never have the opportunity to make the lost value back through future market rises – so knee-jerk reactions should always be out of the question.
Balance past and present
One mistake often made by newbie traders is to assume that past performance and future performance are likely to be inherently linked and therefore can be used as prediction tools. But in practice that’s not always true: the past performance of a market is no guarantee of future performance, and assuming it can be could lead to some costly losses.
What many traders do choose to do is to look at past performance in a critical and analytical way. A graph expressing the fluctuations in a market over the last ten years, for example, may show that the market rose significantly once in year three and again in year seven. A seasoned analyst would know not to assume that this would lead to rises in year eleven. Instead, they might try to work out what underlying forces caused those market rises, perhaps with the assistance of a tool like an economic calendar – and then look to see if those events might happen again in the current context.
Starting out as an investor is a pretty big move to make – especially if it’s something you’ve never done before in your life. Everything from committing a large sum of cash to undergoing a temporary blip in market fortunes can cause stress – so your mindset certainly needs to be in the right place. And from learning about how to use past performance data to ensuring that you have the services of a good financial advisor on hand, there are all sorts of ways to hedge against the inherent risks of investment and give your portfolio the best possible odds of seeing a good return.