Learning to invest is an essential part of any comprehensive financial plan. Without it, you will eventually hit a plateau in your financial growth. However, many people don’t invest, either because they think it’s risky or because they don’t understand it. The following are a few challenges that first-time investors struggle with and how you can overcome them.
Many people looking to get involved with the stock market google around a bit to discover the basics and quickly find themselves overwhelmed by the sheer amount of seemingly complex and even contradictory advice on the internet. Luckily, many of the most reliable trading strategies used by successful investors is quite timeless. New investors may find it easier to avoid the noise and use books as a resource to get started.
New investors may not know about the hidden risks in many seemingly simple investment strategies. This can cause their portfolios to take large hits early on in the process. To combat this pitfall, it’s important to be as informed as possible. Make sure to be familiar with the risks involved with margin, leverage, options, futures, etc. before considering them as an investment option.
One of the biggest challenges that new investors face is having limited capital available to invest. This is only compounded when certain financial instruments are too expensive. However, these issues can often be solved by looking into “partial shares.” Partial shares are essentially workarounds that allow you to invest in equity at a lower price. A couple common examples are the use of REITs to combat real estate investment challenges, or using automated investing tools with low minimum deposits.
This challenge is one that is almost always self-inflicted. Many new investors feel as though they need to invest a bit in everything to shield themselves from risk. However, over-diversification can significantly stunt your portfolio’s growth. It is often best to pick 2-3 options to invest the majority of your portfolio in.
Though the least common of these five challenges, some new investors simply go into the market right before a financial downfall. This has caused investors to lose money before making any! However, this risk can easily be mitigated by dollar cost averaging, a strategy where you invest into the market bit by bit and over a long period to mitigate larger fluctuations in the value in your portfolio.
Not Getting Help
It’s risky to start investing without any outside help. Especially when you’re getting started, you should be using some form of investment advising, whether it’s automated or live. This will give you added assurance that you’ll see a return on your money.
Now that you’re officially armed with how to overcome the very common problems that investors face, it’s time to get your hands dirty and start investing in your future!