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6 Things I Wish I Knew Before I Started Investing

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Written by   46
3 months ago

Investing can be a daunting and overwhelming undertaking. I can't imagine how it must be for new people entering the crypto world. Below is a list of things I wish I knew before I started in the world of investing (some of these may not apply to crypto investing). 

 

Investment Costs Count

When it comes time to allocate money, investment costs are of the utmost importance. Many first time investors will pick actively managed funds with the best-looking brochure and sales pitch. Usually, these funds are packed with expense ratios over 1% of assets. For an inexperienced investor, 1% might not seem like much to pay in return for somebody else investing his money. However, these investment costs eat away at an investors' money. When compounded, take a large percentage of potential returns out of the investors pocket and into the hands of the investment management company.

Think of your investment account as a glass of water. To reach your financial goals, you will need to fill the glass to the top. Investment costs can be illustrated as a hole in the side of each glass. The larger the costs of owning a fund, the bigger the hole in the glass is. When the glass is getting filled with contributions and gains, there is a percentage going out the door to the investment management company. The purpose of this analogy is to illustrate that to reach one's financial goals; one is going to either have to contribute more money to make up for the extra costs incurred or are going to have to achieve outsized investment gains from their current portfolio. As history indicates, the former is a more likely scenario and one that can cost investors thousands of dollars over time.

 

Not All Investment Advisers Are Created Equal

There is another belief that all investment advisers are equally knowledgeable. While many excellent advisers have a client's best interests in mind, many more do not behave ethically. Perhaps the most critical question to ask a potential financial adviser is how they will get compensated. 

 

Individual Stocks are For People That Know What They're Doing

Many beginning investors are intrigued by the possibility to build their portfolio by buying individual stocks. While it is exciting to research and purchase stocks, it is tough to beat the market averages over an extended period. 

 

Bear Markets are Great Buying Opportunities

When the stock market retreats, quite a few investors become frightened and reduce their equity holdings. Sometimes the excuse given is to hold and wait until the market rebounds before investing additional money; it's currently too risky or comments along those lines. This line of thinking ensures that an investor will never buy low and sell high. Bear markets offer attractive entry points for many funds, but often there is a large contingent of too timid investors and lack the conviction that the market will return to previous price levels. They are waiting until the market recovers guarantees that an investor will miss out on the price appreciation during the recovery! As a beginning investor, taking advantage of the buying opportunities a bear market offers will help you out immensely.

Invest Regularly

Investing a certain amount of money regularly is the best thing an investor can do for his portfolio. When a person contributes a set amount of money regularly into the same investment, what occurs is called dollar-cost averaging. It is important to note that not all people agree with dollar-cost averaging, instead preferring to invest their money in what they deem to be the most attractive current opportunity. While there is no correct answer on how to invest the funds, it is imperative to invest regularly.

 

Past Performance Is No Guarantee of Future Results

Many beginning investors are guilty of what is called performance chasing. When an investor picks a fund based solely on its historical performance, he predicts that the fund will perform just as well in the future. There is a reason that when funds show the historical results, the past disclaimer performance is no guarantee of future results is shown underneath it. It is challenging for funds to replicate success over an extended period.

 


Thank you for reading and hope you have a good rest of the day!

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Written by   46
3 months ago
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