Even if you’ve never invested before, there are ways to invest like a expert without putting your future at risk. This means being able to invest money –- to participate in the stock market and other risk related investment vehicles -– in a way that will not expose you to the possibility of losing all of your money.
Nor will it cause you to take on unnecessary debt to start a new business or venture into alternatives investments.
Here’s how to invest like an expert without risking your future stability.
Read a Few Good Investment Books
If you’ve never invested before, you should read some good investment books before you actually take the plunge. There are a lot of excellent books on the topic of investing, including One Up On Wall Street (Peter Lynch), The Warren Buffett Way (Robert Hagstrom), and The Intelligent Investor (Benjamin Graham).
Read some or all of these books, then test out the individual theories on paper. You can do this by simply using the stock selection principles advocated in one of the books.
Choose stocks for a “paper portfolio”, then watch how they perform over the next 12 months. If you are comfortable with the paper portfolio you created based on investment advice in the book, you’re ready for the real thing.
By experimenting with investment strategies on paper, you’ll learn how to invest without risking actual money. And only when you feel confident in a strategy will you actually put up your own capital.
When In Doubt, Invest in Index Funds
If you’re unsure of your ability to invest, or if you don’t have the patience to do so, the next best strategy is to invest in index funds. These are mutual funds and exchange-traded funds that are tied to a specific stock index, such as the S&P 500.
By investing in index funds, you not only remove the need to make individual stock selections, but you also ensure any losses you experience in your portfolio will be no greater than the general market.
In addition, very few actively managed funds, or self-managed portfolios, outperform index funds over the long-term.
Invest for the Very Long-Term
One of the biggest mistakes many investors make is chasing stock prices and market levels up and down. This is a recipe for guaranteed investment failure.
Stocks rarely perform as hoped or expected in the short-term. Investment success requires that you adopt the mindset of patient capital. This means making your investment selections and then being prepared to stay with them for many years.
By investing long-term, you’ll increase the likelihood of achieving truly big gains –- the kind that will build a large enough investment portfolio to enable you to retire comfortably. If you try to time the market, you run the risk of buying and selling at the wrong times, which is an excellent way to lose money.
Avoid the Technology Trap
In an age of dazzling technology, the search for some sort of technological tool that will ensure investment success can be hard to resist. But rest assured there is no magic bullet when it comes to investing. While there are apps that enable you to simplify the investing process, none of them will make you rich -– despite any claims by their proprietors.
People were making money investing long before computers and slick software packages came out. Fundamentals will lead you to success, not systems.
Perhaps the most important technological investment decision you will make is in regard to finding a good online investment broker. These are systems that can simplify the investment process, freeing you to focus on the fundamentals.
Look into online brokerage firms, such as E*TRADE, TD Ameritrade, or any other company you feel comfortable with. Not only do they offer low-cost trading and easy account access, but they also provide valuable resources. Such as research reports and investment tracking.
Grow Your Salary
During bull markets (when your investments are doing especially well), it’s easy to start thinking about investing your way to riches, or retiring very early. Don’t!
Investment markets rise and fall — never let a hot streak change your long-term plan. Continue to work on growing your job income as it’s the key to everything else in your financial situation. The money you earn from your occupation will also provide capital for investing.
The more money you earn from your job, the more you’ll have to invest. No matter how well you are doing with investments, make sure your primary occupation remains your main focus.
A single market crash will make that point painfully obvious. Though we don’t normally think of it this way, your primary occupation is also a form of investment diversification, since it’s generally not related to your portfolio.
Never Keep All of Your Eggs In One Basket
Once again, no matter how successful you are at investing in the stock market, you should always be prepared for a reversal in fortunes. A well diversified investment portfolio is your best defense against this.
Be sure to keep at least some of your portfolio invested in fixed-income securities, like treasury securities and certificates of deposit. This will enable you to reduce potential losses in a declining market, as well as have fresh capital available to buy stocks at lower prices.
There’s no secret to achieving investment success. It’s more a matter of having a solid plan, and sticking with that plan for the rest of your life.