Investing tips for amateur investors

The pandemic has pulled more and more people into the stock market.  The news with reddit and in recent times even TikTok has burst with stock content where professional investors and content creators discuss investing opportunities for ordinary people. Experienced investors can differentiate between amateur and professional investors just by speaking to them. It’s essential for any new investor to understand the basics of several types of financial products comprising stocks, bonds, certificates, deposits & mutual funds.  

And the second rule of an investment is don’t forget the first rule. And that’s all the rules there are.” Although technical knowledge is important there are some basics an investor should know about investing in general and then get in depth knowledge of the financial products. So here are some investing tips for the upcoming batches of investors who can’t wait to dip their hands in the mud and get dirty.

Investment Tips:

• Some of the most common things an investor needs to know firstly are that no investment is a sure thing. Any company can hide their problems from the face of investors. Even the most financially sound company with world class management can be affected by natural disasters or policy change or due to any change in technology become obsolete.  To reduce your risk and improve your returns when investing in individual stocks, it is important that we learn how to recognise companies that may not be glamorous but offers long-term results.

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• If the stocks you are looking to buy still have low prices or stable fundamentals, then remember it might be reflecting short term investment fear. It is essential that we first find out the reason behind the company’s performance. It is important to know why the prices dropped, whether it is just some market rumour or fear and not something permanent. In this case always take advantage of lower prices and purchase as if the stocks are on sale. Also, one should keep in mind that the stock market is cyclical. So if the people in the market panic and start selling that doesn’t mean that others will also take the same steps.
• It should be clear that hiring a broker or a portfolio manager doesn’t ensure high yields and returns. These people are human only and sometimes they may prioritise their incentives and bonuses over their clients and that too on top of the advisory fees that in the long run will eat into your returns. It is also very hard to find a broker who can always beat the market and sometimes may even have discrepancies with the investor over a company portfolio which may not seem right to him but may seem right to you.
• Always have a diversified portfolio by branching out into different asset classes such as metal, energy, bonds, money market funds, mutual funds or ETFs etc.
• Don't fear about cyclical drops in the market because, if you hang onto your investments, there's a good chance that they increase in value. If you are a long-term investor, you will get ample chance over the years to sell at a profit.

• There’s a 120 rule of investment for amateur investors which tells them the percentage amount they should invest of their total money in stocks and bonds which goes as follows - Subtract your age from 120 and the resultant is the number you should invest in stocks and the rest should be invested in bonds.
• Lastly all individuals are different and have a different experience and mind-set. Hence our investment profile will also be very different. For example, an investor who does not have risk appetite should stick to fixed deposits and bonds and try to avoid stocks or mutual funds. Hence it is important to introspect and understand your investment persona and be grounded to that.

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Nextgen Global Services Pty Ltd trading as Kapitales Research (ABN 89 652 632 561) is a Corporate Authorised Representative (CAR No. 1293674) of Maven Capital Pty Ltd (AFSL No. 418504). The information contained in this article is general information only. Any advice is general advice only. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of this product for your circumstances. Please be aware that all trading activity is subject to both profit & loss and may not be suitable for you. The past performance of this product is not and should not be taken as an indication of future performance.

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