Investing can seem both like an easy way to make money and… hard work. This is because you can’t start investing just like that, without any prior preparation. New and inexperienced investors often fall prey to traps linked to unwise investing of capital. Here are 10 tips on how not to make poor choices:
- All the guarantees of investment “systems”, in which you don’t really know what to do, but the system’s “inventor” sends you photos of cash and expensive cars, and tries to tempt you with guaranteed profit and passive earnings… are worthless. They are simply aimed at luring someone in, for the “inventor of the system” to receive a commission from that person’s actions. The person who signed up will not earn much himself… unless he tempts others in a similar way, adding the next rung of the pyramid scheme.
- Forex trading is not recommended for beginner traders. It is a good way of earning money, but for a chosen group of people – currency investments are simply difficult, and as many as 80% of investors eventually lose their capital. You can make a lot of money on forex, but it’s a game reserved for those who have the necessary skills.
- It is worthwhile to divide your capital over many smaller investments with different levels of risks and distribution. It is a good idea to invest in “safe havens”, i.e. assets with a relatively low risk and strong resistance to geopolitical turbulence.
- Never invest more than you can afford to lose. Investing is not a method of paying your bills or getting out of debt. Before you begin to invest, it’s worthwhile to first prepare a solid “safety cushion” in case of sudden expenses and unexpected situations.
- Raw materials are a good and safe idea if the investor plans to engage in long-term investments. Diamonds give a good return within 3-5 years, while gold becomes more valuable the longer you wait, so it is a good investment for your retirement.
- Shares and bonds are considered very secure sources of additional income when the capital is spread over several sets of securities of different companies, and you are able to minimise losses by reselling them when their value drops to an unacceptable level.
- Loss minimisation should be one of the most important abilities of an investor. Do not wait for the negative trend to reverse if the value of an asset falls drastically. Instead, you should accept a loss of 7-15% of the initial price and resell the investment as soon as possible.
- Many investment items are bought through intermediaries. The stock exchange is accessed through a bank, a broker or a brokerage house, while raw materials are bought with the added VAT, and often you have to pay tax on the income generated by investing on the stock exchange, for example. Therefore, you have to include all these fees in your profit and loss accounts.
- The best investment for people with a large capital is real estate. The rental of a property in a large city is still one of the best ways of earning a guaranteed and passive income, and the property will only gain in value over the next few years.
- You should start with trial accounts or small amounts of money, dedicating your time to learning how to invest. This is the safest way not to lose capital at the beginning through unsuccessful first moves, regardless of whether you are investing in forex or the stock exchange.
These are only the fundamentals of investing and earning money by investing capital. Further guidance should include issues related to strategies or further training, but in order to develop an individual strategy, you need to have basic knowledge of your investment area. Even before that, however, young investors encounter traps in the form of some genius systems” or excessive commissions from intermediaries and, unfortunately, they lose capital even before they start investing for real.