Investing doesn’t have to be complicated. It can be simple. If you want to manage your own portfolio, start learning one topic. Here are some tips for you.
Why Investing Is So Complicated?
If you’re starting out in investing and don’t want to hire a financial advisor, but instead want to manage your own portfolio in your self-directed accounts, investing can be complicated. To name a few things, there are:
- jargon: e.g. returns, yields, dividends, interests, maturity
- different types of securities: bonds, mutual funds, exchange-traded funds (ETFs), stocks, etc.
- different concepts that revolve around investing:
- how to diversify? how to set your allocation?
- risk and return. Does higher risk = higher returns?
- dollar-cost averaging: a strategy to buy ETFs, stocks, or mutual funds over time
- valuation: are you paying too much for an investment such as a stock?
- subcategories from each category of security. e.g. For stocks, there could be value stocks, growth stocks, dividend stocks, stocks from different industries or sectors, etc. How do you choose?
Obviously, if you just decided to start investing, you can’t answer all these questions. But you don’t have to! It’s too overwhelming. You can make investing simpler for yourself.
How to Make Investing Simpler?
Start with one topic that interests you.
Let me be honest with you. You’ve got to be willing to put in the time to learn. Thankfully, it’s not quite like going to college classes. First, start with one type of investment that most interests you. I mentioned bonds, mutual funds, ETFs, and stocks earlier, but there are more. You can also invest in real estate properties, farms, precious metals, etc.
If your chosen topic is stocks, you can even start with a publicly-traded company that you like. For example, it could be Apple Inc. (NASDAQ:AAPL), and you might want to find out:
- How does it make money?
- Is it profitable? If yes, how profitable is it compared to competitors?
- Who are its competitors?
- How much debt does it have?
- Is the stock expensive, fairly-valued, or cheap?
- Does it pay a dividend?
- What are its growth prospects?
These are just some questions from the top of my head, and they came with years of investment experience and also my investment style as primarily a value and dividend investor.
Learn slowly. Take baby steps if you have to.
Somehow learning to invest is a daunting task for many people. They’d rather spend more time on grocery shopping than on deciding what to invest in.
The reason to start with one topic is to make it as simple as possible. You can google it, read an article about it, watch a Youtube video, or pick up a popular book or two about the topic.
If you run into any financial jargon, look them up.
In time, you’ll start to form some basic understanding of the topic.
Investing in the Real World
Once you feel you’ve gained some understanding on your chosen type of investment, you’ll need to step into the real world and actually invest. My forte is in stocks. I eventually would combine dividend and value investing. (To keep it simple and to keep myself sane, I started off with dividend stocks.)
All I learned was that dividend stocks are companies that pay out dividends periodically. If you buy shares in a dividend stock, you’re a shareholder of that stock. The dividend stock would pay out dividends, which you can view as an income.
So, I started by buying shares in one dividend stock. Initially, I bought and sold it by buying low and selling high. Though probably not in the way you are thinking right now.
For my first stock purchase, I bought low and sold high; in a single day, I earned around $70. Of course, in that way, I won’t receive the dividend. Contradictory, I know, but hey, I was learning by experience.
However, the strategy to “buy low and sell high” stopped working within a week. I soon got stuck in my position after the security dropped below my buy price. What then?
Obviously, I had more reading to do. That’s how I landed on the topic of value investing, in which there are metrics (e.g. price-to-earnings ratio) you can compare to determine if a stock is expensive at the current price or not. Of course, it’s not as simple as that, but it was a good start for a beginner.
For stock investing, the idea is to make small investments, such that they won’t screw your life over if you lost that money. View those investments as your learning fees. Of course, you’re not aiming to lose that money.
However, once you start investing with real money, you’ll see things that you didn’t see before from just reading or learning about it. You’ll start to experience the real investment world, and you should be able to learn to adapt. Then, learn some more from each investment experience.
The earlier you start investing, the sooner you’ll learn what works for you. As self-directed investors, you really got to feel, and learn your way through with real world experience. Investing is about planning for the future. The sooner you start, the earlier you’ll get more comfortable and better at it.
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Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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