A Beginner’s Guide to Investing – 7 Principles To Remember
It may seem intimidating to try and learn how to invest. Luckily, there’s a few main concepts that will help you get started. The first concept you’ll learn is compound growth. Next, you’ll understand the difference between an investor and a speculator. You’ll also learn why some assets are seen as good investments and why others fail. By the end of this, it will not seem so daunting.
1. What Is Compound Growth?
The definition of compound growth is for an asset to grow over a period of time. Each cycle of growth grows up the last cycle. This causes a snowballing effect where the growth gets bigger and bigger. Growth that averages 7 percent a year for 10 years will nearly double an asset’s value. This is how much the fortune 500 index fund grows on average each year. Many use these kinds of funds for their retirement portfolios.
2. How Do The “Big Names” Do It?
More aggressive people will buy single companies. They are hoping the company has a leadership that keeps reinvesting its profits into stronger growth. Sometimes people discover a company like Apple or Facebook right after its initial public offering (IPO). Some extremely well-run companies average growing over 20% a year in value. Experiment with this free online calculator to really understand compound growth’s possible power.
3. Is Disciple Really That Important?
Huge returns are rare of course. Few people have the patience to do all the studying to pick the rare companies with this potential. They the disciple to hold onto it. Part-time investors often invest in index funds and real estate investment trusts to gain from overall economic growth. They are betting on entire countries or industries growing.
4. How Are Investing And Speculating Different?
Both investors and speculators are looking to grow their capital by buying low and selling high. The difference is a speculator is looking to get in and out quickly. A speculator feels they have a special insight that everyone else is missing. Other times they’re just feeling lucky. They hope to outsmart every other so-called expert on the planet. This causes a speculator to have a very high risk to reward ratio.Most people don’t want huge risk. It is better to buy and hold a solid asset for a long period of time. This gives an investment a better chance of positive growth. It is basically like buying a share in a business or a piece of real estate. An investor believes their asset will be worth even more a decade from now. They are not foolish enough to think they will consistently time the market every day. An investor relies on compound growth instead.
5. Why Are Some Investments More Attractive Than Others?
Some companies are simply more dominant and profitable than others. They have leaders with clear visions for standing above the competition. Most importantly, they reinvest profits into becoming more competitive. Avoid those who waste capital on fancy perks and massive salaries. A company with a focus on realistic growth is the smartest type of investment.They will crumble if they only have buzz. Look for a company with a strong brand. They will be at the top of their market’s mind for a certain category. They will also often have great word of mouth from customers who are more like fans. Strong word of mouth gives them the least expensive form of growth.
6. Don’t Buy Based On Emotions Like Greed.
People who buy emotionally tend to lose it all. They often believe they’ve got the next Amazon or Google on their hands. Seasoned investors know it’s too easy to be wrong. This stops them from betting everything on one thing. Remaining detached from the outcome of your investments is very important. Don’t bet what you can’t afford to lose and it staying realistic will be easier. This is the ultimate advantage.
7. The Hype Is Rarely Real.
Don’t let positive media hype fool you. This can be bought by skilled PR professionals. They’re trying to snag you by the age old emotion of greed. Eventually, everyone will see through the hype game. Then, investors will no longer be confident in the asset, and it will be sold off rapidly. The value will fall to nothing.
Wrapping It Up
Strong investments have a solid chance of growing year after year. Look for companies that seek to dominate their space. Ask if they’re really using their limited resources wisely. Spread out the risk by diversifying if you don’t have the time to do this. Pick countries or industries that look to be dominant and focused on growth. Investment principles also apply at a larger scale.Carefully consult with an adviser and do your own research. Take it seriously if you want to compete with the “big-money” professionals. They spend countless hours and have armies of analysts. Don’t let emotion get the best of you since this is where most people lose. Be careful and remember that compound growth puts time on your side.