Within the investing basics category, we will cover the most basic concepts so you can feel comfortable continuing your journey to investing.
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Why cover the investing basics?
Before you start investing, you have questions, uncertainties & perhaps curiosity towards financial freedom. You could dive right in and create an online account, but what would this result in?
Most likely, you will end up being overwhelmed, disappointed and ready to give up. This is not ideal. Learning the investing basics can help to ease you into the topic.
How basic is the investing basics?
To be honest, very basic. So if you have any knowledge around why you want to invest, your personal goal(s) to invest & have no pressing questions on investing, you can freely skip the investing basics.
How do we cover the foundation?
Investing Guides is a firm believer in starting from the expectations that this is your first time hearing & searching for investing or trading. That’s why the information on this website might seem very simple at times.
Just remember, we all enter this topic with different understanding levels and to ensure this knowledge is accessible & understandable to all, we made this decision.
Don’t let this fool you though, Investing Guides is run by first-hand investors who are actively investing & believe anyone can benefit from knowing at least the investing basics.
Where should I start?
Ask yourself the following:
- Do I know why I want to invest?
- Can I articulate what type of investor I am?
- Do I have any broader investing questions?
Time is on your side
Simply click the above questions if you cannot find an answer to them. Otherwise, continue to consider how your strategy & goal can be realized in the timeframe you feel comfortable with.
Now, hold your horses. Everyone wants to have their wealth quadruple in the span of 5 years, and then retire early. However, you need to be & stay realistic.
So, in the next 5 to 50 years, what is important to you? The chance of being wealthy earlier, with a more significant risk of losing a portion to all of your money, or a less quick path but historically proven to grow consistently.
Quick & dirty
There is no way around it, if you chose speed over safety, then this website will not have much to offer you. In our opinion no get rich quick ‘scheme’ is worth the risk and assets such as crypto, should be a very small part of your portfolio (no more than 5%), if at all.
Slow but steady
If you are reading this, you didn’t leave at the above statement, which indicates you have what it takes to become a true investor & use rationale and patience as your weapons.
This doesn’t mean you cannot invest in products next to stocks & bonds. Because of your portfolio diversification, you may be able to take bigger risks.
This is then done with small portions of your money. You will avoid the fear of missing out (FOMO), and will not regret that one opportunity that actually paid off.
A good way to diversify is to either buy a variety of stocks in different GICS sectors, by buying stock market ETFs after dissecting a good one and by owning safe government bonds.
Trading vs investing
Time, or lack, therefore, is usually the main factor for people to decide on investing or trading. Technically, the terms are used interchangeably within the industry by people & companies alike.
Trading is often accompanied by a high frequency of buy & sell behaviour in the short term. Traders also tend to make use of leverage (continue reading below to learn more) and prefer other product types.
Investors make use of patience and fundamental analysis to commit for the longer term. They invest periodically to get a yearly return which, accumulated, has a significant impact on their financial situation.
The two largest types of investors to distinguish between would be the growth investor & the dividend chaser. The latter tends to be more consistent if you are after passive income.
The dark side of investing
Once you have ‘pledged’ a large share of your portfolio to the above products, then and only then, is it time to talk crypto, options & CFDs.
Volatility is your enemy
To state the obvious, crypto is a very volatile product. Unless you can afford to lose money & distance yourself emotionally, the sleepless nights are not worth it.
Any other ‘safe’ product including ETFs are subject to volatility. However, it has been proven that the more diversified you are (ETFs tend to be by concept), the less your investments will fluctuate. Should they fall in value, they also tend to recover sooner.
Leverage & margin
CFDs, Options & Forex, can be leveraged. This will need to be covered separately as it’s a complicated topic. For now, just know that leverage can increase your returns as easy as it can multiply your losses.
There is a reason these products are heavily regulated. Disclaimers appear on every broker site warning you. It is possible to lose more money than you initially put in. Do be careful not to get into debt.
Oftentimes, traders turn investors after failed attempts at day trading using leverage. The opposite happens a lot less & speaks for itself on which methodology tends to be more efficient.
The next step after investing basics
Do you have previous knowledge or finished the investing basics section? Then move on to specific concepts using the glossary or to explore guides.
Are you even more knowledgeable? Have a look at our categories & individual instruments for some investing inspiration. Alternatively, browse reviews & pick a broker to get started.
Once you start, Investing Guides is still here to provide the inspiration & the latest live pricing & fundamental analysis of certain instruments.