The 20 investing tips you need to follow to be successful
April 24, 2023 3
In this post, we will give you a series of tips for investing that you must follow so that your adventure does not end with an unwanted result. Investing periodically, knowing what you invest in and for what purpose, diversifying, considering taxation and the long term, etc. are some of the essential tips you should follow when you start on the investment path. Here are the 20 tips that we consider necessary for you to succeed in your investment:
“Don’t spend to look rich. Invest to be one.”
1. Know well the product and the assets in which you invest.
Knowing the essential characteristics of the product and the assets in which you invest is essential to understanding the implications such an investment can have on your wealth. You must also understand the investment’s risks and the recommended horizon to prevent unpleasant surprises if you need to recover the investment ahead.
A widespread mistake that is made when investing is to buy products without really understanding their fundamental characteristics. Worry about where your money is invested because the final responsibility for the investment decision is yours and only yours. And if you can’t understand it or don’t have time, let yourself be advised by experts. A maxim of investor Warren Buffett is: Never invest in a business you don’t understand.”
2. Invest on a regular basis.
“The habit of saving is in itself an education; it promotes all the virtues, teaches self-denial, cultivates a sense of order, trains the mind to foresee, and expands the mind.”
In the article “8 reasons for you to save periodically,” we list the reasons why it is interesting for you to save and invest periodically. Could you read it and find out why you should consider a periodic investment today? Systematizing savings and investment so that you make it a habit will require less effort to achieve the financial objectives you set. But it will also provide you with multiple advantages, such as completing a higher return by assuming less risk since, from the first contribution, you can start generating a return.
Through compound interest and the successive contributions you make, your money will increase exponentially. By making successive entries in the financial instrument you choose, they will tend to balance over time, which means you will take less risk. You will not entrust your purchase price to a single moment; you will take the average price of the different entry times. This will be an excellent way to compensate for the ups and downs of the market.
3. Find out what you’re investing in.
“An investor without investment objectives is like a traveler without a destination.”
Would you happen to know what you save and invest for? It is more frequent than you think that the financial objectives and what the money is invested for are not exactly clear. Before you start hiring a financial product, carefully analyze your economic availability. Establish what part of your money you will not need in the short term, what amounts you want to allocate for each objective you set, and what savings capacity you can generate. Doing this exercise is essential to achieving final success with your investment. Because it’s known, “If you don’t know where you want to go, it doesn’t matter which way you go.”
4. Keep taxes in mind.
Knowing the fiscal repercussions of your investments will directly impact achieving your financial objectives. This fiscal aspect is just one more aspect to consider when investing. Still, it must be taken into account because it may influence the final return on the investment to a greater or lesser extent. Therefore, before making an investment decision, you must consider how it will be taxed under personal income tax and how much it will be.
5. Don’t just look at past returns.
Historical profitability is one of the criteria attracting the most investors’ attention. Relying exclusively on past returns should not be the only or main aspect to consider when deciding on an investment’s suitability. This data provides helpful information, but it is a widespread mistake for a beginner investor to repair only this aspect. To obtain complete information, we must know the current profitability data and future prospects. Hence the famous phrase, “Past returns do not guarantee future returns.”
6. Take inflation into account.
Having the habit of saving is essential for proper financial management. But it is also worth making those savings profitable to at least compensate for inflation and avoid the loss of purchasing power due to the effect of inflation. Today, you will need more than traditional savings products to achieve this. You will have to go to investment products to avoid losing purchasing power with your money.
“Don’t put all the eggs in the same basket.” This is what popular wisdom says, and nothing goes wrong. Today, the economic environment and the financial world are becoming more complex. This situation has nothing to do with that of a few decades ago when the Spanish saver only had to hire a term depositor or leave his money in an account to obtain an acceptable return.
Currently, achieving the same thing requires greater effort and risk. Therefore, managing such a risk is essential, and one of the ways to do it properly is through diversification. Investing in different types of assets, financial instruments, sectors, geographical areas, investment horizons, etc., will help you reduce your investment risk. Also, as we indicated above, you can reduce this risk the more moments of entry you make in your investment, i.e., the more diversified the entry price is.
8. Invest in the long term.
Once you have decided to have an emergency fund that allows you to face unforeseen events, and in turn, you have a certain liquidity for the day-to-day, invest the money you will not need in the short term. You must design and plan your investment. This must align with your investment objectives, but it is also essential that a part of that investment be focused on the long term to maximize profitability and reduce the risk of it. But what do we mean by a long time? Although there is no unanimity in this regard, it is commonly accepted to consider long-term at 5 years and, without any doubt, ten years.
9. Let compound interest help you.
In all likelihood, compound interest is the aspect that determines final success, along with perseverance and discipline when investing. Compound interest will allow you to generate new interest from the first investment amount. Since it begins to generate profitability, the interest produced when reinvested successively, together with the capital of the previous period, will generate new interest. This return obtained by constantly reinvesting capital and interest will allow you to get higher returns in the long term than if you only invested the same initial capital.
10. Always compare options.
When you buy a home or a car or are simply looking to book a hotel or an apartment for your vacation, you compare characteristics and analyze opinions. The world of finance doesn’t have to be different. It’s time to give it the necessary importance. If you want to monetize your money, compare financial products’ characteristics, advantages, risks, returns, liquidity, etc., to know which ones best fit your goals.
Once you have determined which financial instrument you want to invest in, always compare the financial entities or intermediaries providing these products to determine which suits you best.
11. Try to avoid predicting.
Always stay invested. Guessing when it is the right time to invest is very complicated. Therefore, the advice is always to remain invested. And as long as you don’t need your money imminently, you must properly select which product you will invest in. And keep in mind: make periodic contributions. If you are not an expert investor, do not perform market timing (a financial strategy of purchasing and selling assets while trying to predict the market). The probability that it will always turn out for you and achieve a higher return on the market will be very low. The most sensible thing is not to predict and stay invested, although this does not mean you cannot punctually rethink the investment strategy when the time comes.
12. Keep in mind the risk of the investment.
If you ask most people who invest, they will answer that they are conservative and, of course, unwilling to lose. Who wants to lose money? This is one of the critical aspects when you are going to invest. Know your investor profile and your attitude toward risk properly. If things go wrong, would you be willing to increase your investment or, on the contrary, would you undo your position by materializing the loss you could have had until that moment? Invest a part of your money in equities. Even the most risk-averse investor must have a considerable share in equities through stocks, investment funds, pension plans, etc.
13. Check the legal aspects.
You can always compare the information you receive with official sources. You can consult information on relevant facts, legal information brochures on investments, periodic reports, or warnings on investment entities or operations there. And in case of doubt, you can consult the entities authorized to provide investment services or, expressly, the unauthorized entities (commonly known as financial beach bars).
And always be wary, always, “of whoever gives you hard pesetas.”
14. Know your investment horizon.
We mean that you adapt your investment to the horizon you have. We have already commented on the convenience of investing in the long term. Of course, we are diversifying terms with shorter and medium-term maturities and adjusting them to the objectives we have set ourselves.
15. Monitor the costs of your investment.
Not only should you inform yourself of the essential characteristics of the markets and assets where you invest, but you must also inform yourself rigorously of the commissions, expenses, and costs your investment will incur. Never forget that these expenses will directly impact the final return on your investment.
You can find out about the contracting conditions, and always compare between intermediaries or financial institutions. This does not mean you go where it is cheaper because you must contemplate another series of aspects, but keep in mind that you must know in depth the costs of your investment.
16. Don’t get carried away by emotions.
“Investing favors the dispassionate. The market efficiently separates emotional investors from their money.”
Perhaps this is one of the biggest obstacles that every investor faces. Knowing yourself and not getting carried away by emotions will be essential to the final success of your investment. Investing on impulse, almost in all probability, will only lead you to lose money.
17. Invest a part of your money in equities.
This aspect is related to another in which, as previously indicated, a good part is invested in the long term. And in the long time, equities are the most profitable asset and greatly reduce risk. Even the most risk-averse investor must invest some of his assets in equities. Through stocks, investment funds, pension plans, etc., there is a rule, the 100 rule, used to determine the proportion of equities an investor should have in his assets. It consists of subtracting your age from 100; the result is the percentage of equities you should have in your portfolio. More recently, some authors have defended revising this value, replacing it with 120.
18. Try to avoid getting into debt to invest.
Unless you master other points that we have already discussed very well, be careful with this. Asking for a loan to invest will undoubtedly increase the speed at which you can profit or multiply your losses. Using money that is not yours to invest will increase the risk of the investment. And obviously, you have to calibrate the conditions of that loan very well since the expenses and interest on it will reduce the final profitability. This operation is reserved for investors with a very high-risk profile.
19. Review your investment.
Once you take the step of investing, you should remember your investment. Periodically, you should review your investment, the market prospects, and the assets you invest in. This should not lead you to obsess over its evolution and be constantly aware of the ups and downs. This will only lead to a wrong decision to disinvest hastily when the market turns against you, which will happen sooner or later, without considering your objectives and the discipline required to succeed.
Refrain from letting the daily ups and downs of the market make you lose sight of the direction of your investment.
20. Take the step and act!
Another widespread mistake for a beginner investor is waiting for optimal market conditions before investing. This may never happen, besides being very relative and difficult to know. You only risk losing half your life waiting for “your moment.” Make up your mind!
These are the 20 essential tips that you must follow for your investment to end successfully.
If you want to expand your knowledge and have your investment criteria, you have excellent training programs like “Take Off Your Finances.” In this training program, you will learn how to invest with little money, diversify effectively, and monetize your savings simply and safely with your criteria. You will learn how to invest by yourself without having to follow the requirements of any expert.