We’ve all heard the investing fairy tales come true. Warren Buffett, for example, started his career by selling Coke bottles door-to-door, and he is the majority stockholder in The Coca-Cola Company (KO) today. All by investing alone.
There is a reason we are not all billionaires, though – investing can be incredibly risky, especially if you are just starting. However, you can minimize risks and maximize returns with the right know-how. Let’s explore some tips, tricks, and strategies to help you guide your initial steps toward reaching your investing goals.
1. Think about what your goals are first
Although it might seem redundant at first glance, every expert investor can confirm this step is vital.
Are you looking for a quick way to multiply your principal, or would you rather make a portfolio that generates passive income for an early retirement? These two goals, for example, require diametrically opposite approaches, active and passive investing, respectively.
Different goals and timelines have different optimal strategies and methods. Purchasing bonds or investing in individual retirement accounts or 401(k) takes little effort and bears little to no risk but takes much time to produce returns. Likewise, short-term stock trading can deliver results the same day but requires active involvement and poses a much greater risk of loss.
2. Consider the type of financial asset
Once you know what you aim for, you should think about the means to get there. In other words, you should think about the type of asset you want to invest in.
The usual way to create a portfolio is via a brokerage account, and the most common investing assets are stocks, mutual funds, and ETFs. Nowadays, there are plenty of platforms to pick from, with various benefits depending on your goals.
For clearer, less complex investing goals, such as growth investing, you can also go with a robo-advisor, which comes with lower fees and automates certain tasks, e.g., rebalancing.
Here’s a simplified classification of the most common financial assets:
| Type of asset | Investment type | Risk level |
| Stocks | Active, long- and short- term | Medium to high |
| Index funds and ETFs | Long-term growth | Varies |
| REITs | Long-term, passive income | Medium |
| Bonds | Long-term, fixed-income | Low |
| Cryptocurrency | Alternative, usually short-term | High |
3. Designate your budget limit
Next, it is crucial to limit your budget and not overextend. Going into high-interest debt usually eats away any potential returns, and a downward spiral of debt can be brutal to get out of.
On a side note, there are multiple ways to invest the money, including spending a lump sum and dollar-cost averaging. If you are putting your money into a retirement account, 15% of your income is the golden rule, but you can start with as low as 1%: it only depends on your goals and capacities.
4. Gauge the risk you’re comfortable with by diversifying
As mentioned before, different approaches carry different levels of risk. Active trading on the stock market is riskier than purchasing government bonds, but higher risk comes with higher potential returns.
Therefore, it is recommended that you diversify your portfolio by introducing different assets and hedging your bets. A diverse portfolio withstands losses better and helps you maximize returns. Losing on a fraction of your investment is much less debilitating than putting all your eggs into one basket only to watch it tumble down the hill.
5. Monitor and rebalance your portfolio over time
Your investing journey does not end with formulating a strategy and obtaining the assets. Every market is volatile, and conditions tend to change over time: what worked for you last month might turn sour in half a year.
Regularly revise your strategy and reshuffle your portfolio according to your evolved needs or shifts in the market. Certain assets will require more frequent monitoring than others, but every portfolio will benefit from your active involvement.
The bottom line
Investing is a challenging business endeavor. Still, by thoroughly researching your investment, implementing specific measures, and sticking to proven guidelines, you can boost your odds of success and maximize potential returns. Good luck!
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
