5 Things to Know Before Investing

Such questions, whether straightforward or hazy to answer, need not inundate you. To make you feel confident, providing the right safeguards to help you make the most of this journey is of the essence. Here are five things to know before investing:

Investing is risky.

This is the first and most important thing you need to know before getting started, and it can’t be overemphasized. Investing in anything has a risk factor to it, be it business or the stock market. In business, you take stock of the SWOT analysis before making your decision because you want to know if taking that step will be worthwhile. Understanding the strengths, weaknesses, opportunities, and threats will help you gauge the risk involved if you put your money in the business. You then determine how to mitigate the risks involved in order to be profitable. It is exactly the same with investing. A soaring stock this year may be a tanking stock the next year. Putting your money in an investment may bring you higher returns, lower-than-expected returns, or even no returns, eroding your initial capital.

Every professional investment firm is mandated by licensing authorities and regulatory bodies to issue this warning to all aspiring investors prior to their making an investing decision, as part of their service provision. Despite this, being knowledgeable about what you want to invest in is a start to assuaging potential risks. You will then be looking to start investing based on your risk appetite. 

A few questions you will need to ask yourself could include: How risk tolerant am I? Will I feel terrible and stop investing if I lose my capital? Can I survive comfortably without this capital I’m about to invest? How much returns can I make from this investment? What do I plan to do with the returns I make? With this backdrop, it is good you take note that investing is business, and should be approached as so in order to make success of it. 

Investing isn’t a get-rich-quick scheme. 

The second thing you need to know before investing is that real-time investing isn’t a get-rich-quick scheme. Investing is a process. However, you have the opportunity to decide what you want your own investment process to look like. Do you want long-term investments that will provide an egg nest for you in retirement or do you want short-term investments that you can earn from on a rolling basis, quarterly or annually or even weekly? This is your choice, and your goal will be to seek knowledge of opportunities that give you exactly what you want out of investing. A good place to start learning is the Security and Exchange Commission’s office of investment education and advocacy. You may decide to have a mix of both long- and short-term investments across different portfolios or investment vehicles – the choice will be absolutely up to you. Examples of investing you can do for the long term could include stocks, bonds, real estate, cash, etc., while short-term investments like high-yield savings, treasury bills, and bonds can be traded for cash between 3-12 months, with maximum holding capacity of five years.

Investing is in grades. 

Every veritable opportunity to grow your capital may be termed an investment, but not all investments are born equal. So, what you need to understand is that there are different levels to investing. The question is how much can you allot to investments after saving money to sustain your current lifestyle? What investment opportunities can this amount of money get you into? In his ground-breaking book on investing, Rich Dad Poor Dad, Robert Kiyosaki described his inability to make certain types of investments because of cash limitations. For example, you may need to hold cash assets of up to $250,000 with a licensed broker to stand a chance to invest in an IPO according to Bankrate, and you may need as little as $10 to start investing in currencies with an online forex broker. Investing in mutual funds may require between $1,000 to $5,000 according to Investopedia. The question is, which grade of investing can your money start you off with?

Investing support pillars are important. 

You can start investing on your own after gathering enough information that fits your needs. Notwithstanding, having investing support pillars may prove to be the thin line between success and failure. These pillars can include fund managers and investment advisors. A good advisor will provide guidance on the selection of the right options for you, or create a diversified portfolio to enable proper risk management. Professional support will steer you away from pitfalls, and keep you within the limits of the law in terms of rules guiding investing in your country like tax remittances, restrictions on retail investing, etc. Other investing support pillars can include experienced friends and family members who are willing to furnish you with mentoring and advice.

Investing opportunities will expand. 

The fifth and final thing you need to know is, opportunities for investing will continue to expand with new knowledge and the introduction of nascent technologies. This will give rise to avenues for all kinds of fads. While some will stand the test of time, a lot will fizzle out or cause losses to investors. A common acronym in investing circles is FOMO (fear of missing out), meaning the frenzy caused by the herd mentality. The herd mentality connotes a large number of people chasing an investment opportunity they believe they have not had an early start on and simply going out of their way to cash in on the action before it is all gone. The bottom line is, with proper investing advice, you can better navigate such scenarios even if it captures your entire community positively or negatively. Expanding your knowledge of investing will help you have the right mindset to approach new opportunities, seek professional advice, and take advantage of opportunities in the best way possible. 

Embracing these five tips can go a long way towards giving you the needed edge to succeed as an investor. To wrap this up, here are the five takeaways of things you need to know before investing:

• Investing is risky; it is a business. Treat it like one by evaluating your risks.
• Investing isn’t a get-rich quick scheme. Investing is a process – enjoy the journey.
• Investing is in grades. Investing is zeroed down to what you have and finding what is suitable to invest in with that amount.
• Investing support pillars are important. Investing with professionals and mentors will provide a safety net for you.
• Investing opportunities will expand. Investing avenues will always abound, so keep gaining knowledge, and don’t succumb to FOMO.

With these five things you now know, how ready are you to get started investing?