Yes, there are investments for beginners!
Investment is a very great way to multiply money and everyone wants to know what it takes to be in investment even as a beginner. well, you’re in luck as this promises to teach you the a to z of investments for beginners.
Alright, enough of the chitchat let’s get right in.
What is Investment?
“Investment is the dedication of an asset to attain an increase in value over a period of time. This requires some present asset such as time, money or effort.” Wikipedia.
In plain layman’s terms; investment is the action or process of investing money for profit.
Generally, the purpose of investing is to generate a return from the invested assets. The returns will have only two variables a gain(profit) or a loss gotten from the said investments which may include but are not limited to the sale of property, and many others.
The returns may also include currency gains or losses due to changes in the foreign currency exchange rate.
Investors generally expect higher returns from riskier investments. When a low-risk investment is made, the return is also expected to be generally low. Similarly, high risk comes with high returns.
Before I proceed a quick sub-topic.
Who is an Investor?
What comes to mind when you hear the word investor, given the fact that we’re talking about investments for beginners?
Well, an investor is a person or an organization that puts money into financial schemes (not Ponzi’s), properties, businesses, etc. with the expectation of earning a profit.
Types of Investors
There are mainly two types of investors and they are;
These are non-professional individual investors that invest money themselves or through brokerage firms.
An institutional investor is a company or an organization that invests money on behalf of other people, e.g., mutual funds, pensions, insurance, etc.
A major investment tip for beginners is to diversify their portfolios.
Now that you know who an investor is and the types of investors there are, the next conversation becomes how to become an investor.
How to Become an Investor?
Given that we’re talking about investments for beginners I understand that this is the major discussion so let’s get right into it.
Well, there’s this saying that nothing good happens overnight, right? This also applies to investment.
The most successful investors were not made in a day, so even when thinking of investment as a beginner be rest assured that it’ll require time and patience for you to learn the ins and outs of the financial world.
Here are 6 things to take with you on this journey, never lose them as they’ll make you on this path!
Before You Say “I do!”
Successful investing is a journey, not a hit and run event and as such you have to prepare like you’re going on that long trip and be on it for the long term. Most times when people think of investment as beginners, they tend to see the good life, fancy cars, and the other stuff and misinterpret it to be a get rich quick scheme or as a way to get quick money.
See investment as a marathon, not a sprint! What does this imply? If you don’t see investment as something you could do for at least 5 years please just don’t venture into it.
So, before you say “I do” think twice about the union.
Given the scenario; you intend to retire at either 55 or 60 years after about 25 or 30 years of work. The question you should ask yourself becomes; “how much money do I need to achieve this?” The plan you eventually come up with would fuel your journey.
Look Before You Leap
Read books! Yes, a ton of them.
“The more that you read, the more you will know. The more that you learn, the more places you’ll go.”
Read books or even take an investment course on modern investment plans. No questions were raised as to why those who came up with theories on portfolio optimization, diversification and market efficiency were each awarded a noble prize. Investment is a combination of science and art i.e. financial fundamentals and qualitative factors respectively.
Once you’ve done your assignment as regards investment for beginners and now know what works in the market, come up with simple rules that work for you.
Warren Buffet the king of investment summed up his strategy in a simple quote; “never invest in a business you cannot understand.” How else would he be crowned king if his strategy failed?
While he’s missed out on a ton of opportunities, he has also made a ton of money that they really don’t matter.
Yes, he’s a billionaire!
Know Your Strategy
Nobody knows you and your situation better than you. Thus, you become the most qualified person to do your own investing—all you need is a bit of help. Identify the personality traits that will assist you or prevent you from investing successfully, and manage them accordingly.
There are five personality categories as described by the BB&K model which was developed by fund managers Tom Bailard, Larry Biehl, and Ron Kaiser.
- Individualist – careful and confident, often takes a do-it-yourself approach
- Adventurer – volatile, entrepreneurial, and strong-willed
- Celebrity – a follower of the latest investment fads
- Guardian – highly risk-averse, wealth preserver
- Straight Arrow – shares the characteristics of all of the above equally
Regardless of which group you fit into, you should manage your core assets in a systematic and disciplined way.
Know Your Friends and Enemies
Trust you’re aware that you need to beware of false friends! Individuals who only pretend to be on your side, such as certain unscrupulous investment professionals whose interests may conflict with yours.
You must also remember that, as an investor, you are competing with large financial institutions that have more resources, including greater and faster access to information.
Never forget that you are potentially your own worst enemy. Depending on your personality, strategy, and particular circumstances, you may be sabotaging your own success. Know your personality traits and stick to them as it’ll do you more good than harm.
Be honest with yourself, identify and modify the factors preventing you from investing successfully or moving you away from your comfort zone.
Find the Right Investment Path
Your level of knowledge, personality, and resources should determine the path you choose. Generally, investors adopt one of the following strategies:
- Don’t put all of your eggs in one basket. In other words, diversify.
- Put all of your eggs in one basket, but watch your basket carefully.
- Combine both of these strategies by making tactical bets on a core passive portfolio.
Most successful investors start with low-risk diversified portfolios and gradually learn by doing. As investors gain greater knowledge over time, they become better suited to taking a more active stance in their portfolios.
Be Willing to Learn
This is the apex of them all when talking about investment for beginners. Learning to be a successful investor is a gradual process and the investment journey is typically a long one. The market would be hard to predict, and of a certainty characterized by or subject to rapid or unexpected change, especially for the worst, i.e., difficult to capture or hold permanently. Most times, the market will prove you wrong. Acknowledge that and learn from your mistakes.
A great man said, “the day you stop learning is the day you start dying!”
Having known these the next question probably becomes how to spot a Ponzi scheme?
How to Spot a Ponzi Scheme?
Some beginner mistakes might include jumping on all and every opportunity they come across without troubleshooting it first. I’ll try to cover key points as it relates to investment for beginners.
First What is a Ponzi Scheme?
A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds. Wikipedia
Now, please note that you ought to be diligent when you’re decided to go into investment and do a thorough background check to ensure that you do not lose money!
Here are things to note as they’ll help you in spotting a Ponzi scheme;
High Returns with Little or No Risk
Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
Overly Consistent Returns
Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions.
Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.
Federal and state securities laws require investment professionals and firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
Secretive and Complex Strategies
Avoid investments if you don’t understand them or can’t get complete information about them.
Issues with Paperwork
Account statement errors may be a sign that funds are not being invested as promised.
Difficulty Receiving Payments
Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.
While all these are very valid, please be aware that these individuals are getting smarter by the day. But, notwithstanding there must be a clear show of one of these red flags except you failed to be on the lookout.
Please do well to share this article with friends, family, colleagues, and those with who you’d want to acquire the knowledge of this. Drop a comment in the comment section lets know your thought.
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