There are two ways that you can make money. One is by working for yourself or for someone else, and one is to have your assets work for you. If you are working but not investing the money, that money doesn’t work for you by making money for you. So, you will never have more than what you save.
Investors generate money by earning interest on what has been saved, or by buying assets whose value increases.
Traditionally, you would have an investment broker who was a person that would invest in the stock market on your behalf. They would take into consideration your risk tolerance and financial goals and they would recommend investments and do the trades for you.
Of course, because of their expertise and work, investment brokers are more suited to high end investors who can afford their commissions.
Traditional banks have their own brokerages, but now you have the option of investing through platforms instead of banks.
For those who can’t afford commissions, or don’t want to deal with banks, there are online brokers, also referred to as discount brokers, which are online software platforms you can use for investments.
With the new investing platforms, you can now invest on your own behalf and stay on top of your investments.
These platforms allow you to open investment accounts (also known as brokerage accounts) to trade securities on the stock market. You must have a brokerage account if you want to buy and sell stocks, bonds or ETF’s (Exchange-Traded Fund).
Investing in the stock market is not a matter of luck. Success depends on applying known principles. Invest regularly, and avoid risk. Then, wait. Time and compound interest are the easiest way to grow your investment.
Here are five investment tips you can consider when investing:
1. Set Financial Goals that are Long Term
Part of setting goals is knowing the purpose of your investing and what time in the future you may need funds. If you will need funds within a few years of investing, you can’t be sure that they will be available, due to the volatility of the stock market. Having a time frame also helps you calculate how much you should invest.
2. Know Your Risk Tolerance
Risk tolerance is how you react to risk and the amount of anxiety you feel when risk is present. It is influenced positively by education, income and wealth, but is actually a psychological trait, and subject to perception. Age decreases risk tolerance as well.
Investments that cause anxiety should be avoided, for your peace of mind.
3. Avoid Emotion Driven Decisions
Your decision to buy stock should be based on logic and systematic analysis, not fear, and buying and selling should not be based on emotions coming from rumour or hopes.
4. Study and Learn
Take time to learn the basics of the stock market.
Don’t put all your eggs in one basket. Diversifying provides a buffer from total loss if there is a downturn.