Is investing wise? Tips & insights to invest wisely
Everyone can invest: investing wisely can, however, be a challenge. With the tips & insights in this article, you can invest wisely and increase your chances of a high return.
Is investing wise?
In my opinion, investing is wise for almost everyone. It is important, however, that you have money that you can afford to lose. If this is not the case, you should not invest.
If, on the other hand, you can spare a small amount (for example, 100 per month), then investing can certainly be wise. Due to inflation, the amount in your account decreases in value, which means that you can buy less with it in the future. By investing this money, there is even a chance that you will save a larger amount in the long term.
How to invest wisely?
Make sure you always have a buffer that you can use to, for example, repair the washing machine. A financial buffer can absorb unexpected expenses and prevent you from having to sell a large portion of your stocks.
Furthermore, it is recommended to diversify your investments. Do not invest all your money in one company: if the company goes bankrupt, you will immediately lose your entire investment. For example, you can choose to invest in an index fund. This makes it possible to invest in a selection of stocks all at once.
Where can you invest?
Do you want to start investing? A wise choice! Nowadays, you can start with small amounts: even if you can only spare euros per month, you can try investing. You invest with an online broker: a broker is a party that can buy and sell investment products such as a share on your behalf. Use the button below to compare different brokers directly:
Risks of investing
A wise investor understands what the risks are. In the short term, you can make a loss if you invest at the wrong time. Active trading costs more energy, and it can be challenging to beat the market.
Investing in the long term is a lot more secure. Especially if you also invest at different times, you increase your chances of a positive return. This allows you to benefit from an average return, which in practice is often between 6 and 8 percent.
How to earn money from investments?
The first way to earn money from an investment is by value increases. On the stock market, there is a constant interplay between buyers and sellers: the strongest group then determines what happens to the price. When more people want to buy a certain stock, you’ll see the price increase.
A second method to make money from an investment is through dividends. Sometimes companies choose to pay out a portion of their profits. You can then buy an ice cream or reinvest this money.
7 principles for a flying start
Assess your financial situation
Set aside enough savings to ensure you always have a buffer when you run into trouble. Investigate how much money you can invest periodically.
Set a long-term goal
Delaying investing is a waste! By starting early, you can benefit optimally from the compounding interest principle. Did you know that you can also earn interest on your returns? Especially over a longer period, your wealth can grow exponentially.
Diversify in moderation
Some investors enjoy investing a little bit too much. They might buy 120 different stocks, which makes it difficult to track their results. It is often smarter to spread your investments over 20 to 40 stocks. You can also decide to invest in an ETF to automatically to diversify your money over different stocks.
Pay attention to transaction fees
A wise investor pays attention to costs. High costs significantly reduce your return. On paper, a difference of 1% may seem insignificant, but because costs accumulate exponentially over time, you can quickly lose a lot of money. Therefore, always pay attention to the transaction fees when you select a broker.
Automate
Don’t have a lot of time? Set rules for automating your investments. For example, periodically invest a fixed amount in a fund. This allows your wealth to grow slowly without having to monitor it constantly.
Do you want to speculate actively?
Speculating is not suitable for everyone. Depending on the broker, between 60 and 80 percent of investors lose money with active trading. Do you still want to try active trading? With these four rules of thumb, you can better manage the risks of active speculation.
Rule of thumb 1: Losing is Winning
This may sound contradictory, but it’s not! The only way to win with investing is by sometimes taking a loss. Not every investment will turn out as you hope. Sometimes, a company can suddenly perform much worse.
To ensure that you sometimes take a loss, it is important to determine your limits in advance. By setting your limit, you eliminate unpleasant emotions and make fewer unwise decisions.
Within the trading platform of your broker you can apply a stop loss. A stop loss is a certain value at which you automatically take your loss…
Rule of thumb 2: Win More!
A second rule of thumb is to win more! This may sound a lot more logical than the first rule of thumb. However, there are enough investors who ignore this rule and consistently lose more than they win. To make it possible to win more, you can use ratios.
With a ratio, you make sure that for every $1 of loss, you ensure that there is at least $2 of profit. When you open a trading position, you should therefore verify whether this ratio holds true.
If this is not the case, as a wise investor, the best decision is to avoid the investment to prevent an unfavourable risk-reward ratio.
Rule of Thumb 3: Always Profit
Many investors panic when stock prices decline: this is unwise! If you are wise, you should be cheering at significant falling prices. Smart investors know that it is possible to profit from a falling price by shorting.
Therefore, always verify the general trend and make sure to invest with a broker, where it is also possible to make money in a falling market.
Rule of Thumb 4: Practice with a Demo First
It is unwise to start investing with a large amount immediately. If you are wise, you should practice investing first with a demo. We have compiled a list of brokers where you can start practising:
Conclusion: Is Investing a Good Idea?
Personally, I am a big fan of investing: I think it is a good idea. However, it is essential to carefully consider whether it is wise for you to invest. For example, if you have debts or cannot afford to miss money in the long term, then it is better to stay away from the stock market.
The fact remains that investments are the only effective way to protect yourself against inflation and the devaluation of your assets. Saving costs money, investing earns money…so, in my opinion it is an easy choice.
Auteur
Over Alex Mostert
When I was 16, I secretly bought my first stock. Since that ‘proud moment’ I have been managing trading.info for over 10 years. It is my goal to educate people about financial freedom. After my studies business administration and psychology, I decided to put all my time in developing this website. Since I love to travel, I work from all over the world. Click here to read more about trading.info! Don’t hesitate to leave a comment under this article.
