Every investor starts off as a beginner. Some have a solid foundation to build from, and others learn through experience. This article will explore the best way to start investing, principally broken into three distinct parts. With that, let’s get started.
The Best Way To Start Investing
There’s no one “right” way to invest in the stock market. Similarly, it’s also important to note that there are many beneficial resources out there which could help to guide you throughout your investing journey. However, what might work for one person won’t necessarily work for another.
So, in this article, I will examine a few different approaches you can take towards investing. The best way to start investing won’t be the same for everyone. In addition, it’s important to learn about an array of strategies and pick the one(s) that work best for you.
If you want a good start to investing, start it on foundations that you establish. You want to be successful at investing, whatever that entails for you? Keep reading to learn more on the best way to start investing today.
Why are you getting started in the markets? Do you want to save for retirement? Is it to have additional income to supplement a nine to five? Are you hoping to make trading and investing your only source of income? Identifying what your motives are educates the steps that you need to take. From here you can identify time horizons, odds are retirement is further away than a purchase. Time horizons can impact how aggressive you should be, so accurately identify them.
From there, identify your risk tolerance. Are you comfortable buying stock options a few days before their listed expiry? Do you want something as risky as a government bond? Are you comfortable using margin or investing in emerging markets or industries? Would you prefer an established, blue chip, company with reliable returns and dividends? Or would you prefer a new(er) growth stock, that is far more volatile, and probably doesn’t pay out dividends? Never allow social pressures, the news, your friends or social media to alter your risk tolerance. At the end of the day, you’re the one who has to live with the outcomes of your decisions. If you’re not comfortable with something, don’t get involved.
Then ask yourself if you have any social or ethical parameters for your investments. Are you trying to stay green? Do you want to avoid companies that do business with/or in certain countries? Are there social values that you want companies to promote or support? There is no “right” answer to any of these questions, only the answer which is right for you. Similar to risk tolerance, you want to be comfortable with what you are investing in.
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What type of analysis will you employ in identifying investment opportunities? For instance, quantitative, fundamental, technical or some variation thereof? Quantitative analysis focuses on the research and collection of financial data, and making mathematical formulas. A company’s 10K, specifically the income statement and balance sheet and historical data are your best friends.
Fundamental analysis is a less complex math version of quantitative analysis, and with some broader analysis. For example, who is running the company? What is the news sentiment regarding the company? How is the broader economy performing? Technical analysis requires a lot of charting, and seeing patterns appear in a stock’s price. This also includes other market data, such as volume, short interest, RSI, etc.
Deciding on what the best way to start investing is, in regard to analysis, requires thorough study. You may very well find yourself to be a purveyor of a hybrid type of approach. Perhaps you use fundamental analysis to identify long term investment targets, and technical analysis to find short term entry points. However, don’t become so focused on the analysis that you never actually get to actually investing. There are exceptions though, like if you’re sincerely torn on the merits of a potential investment.
Hopefully, in educating yourself, you’ll also be able to avoid FOMO. General piece of advice, if a stock’s movements are broader news, it’s too late to get involved. The people who bought Gamestop on January 12, 2021 were much happier than those who bought in on January 28. Sure, you can argue that FOMO worked out for those who bought in the middle of that range. But who knows where the middle is? For your sake, stick to your analysis, and don’t chase the trend.
Conclusions on The Best Way to Start Investing
Simply put, the best way to start investing is to build a solid foundation for yourself. A foundation where you know what you want and are comfortable with. One where you have the tools to make your own investment decisions, identifying your own opportunities. For instance, you can put yourself in a position to be profitable. To make money and put it towards whatever goals you set. Sure, there will be ups and downs along the way. If all else fails, there’s no shame in taking a more passive approach and investing in an index fund. Never feel like you’re doing something wrong because it isn’t how others are doing it.
What matters is that you achieve the goals that you have set for yourself. Whether that entails a passive or aggressive approach, short or long term investing, stocks or bonds, etc. is up to you. As long as you’re building from your foundation, you’ve got the best way to start investing, for you.