Equity crowdfunding has opened up the investment market to more people than ever before. This means that there is now a new wave of investors entering the market, and it is important for new investors to understand the best practice rules before they dive head-first into the investment sphere.
There are a few ways to ensure that your investments are intelligent, most of which come down to due diligence and dedicating sufficient time and focus to the process. Here are our tips on becoming a better investor:
This is the number one rule of investing. Putting money into just one company, property or project is ill-advised because it means you have no safety net if that particular investment fails. Spreading money across multiple investment targets (preferably in a range of sectors) allows failures in one part of your portfolio to be balanced out by successes in another. A fully diversified portfolio with a number of varying assets is the best way to ensure good returns overall – as a strategy, it has even been encouraged by academic investors working out of universities (see the Yale Endowment Model for an example).
It seems obvious to say, but extensive research is required before any investment. This will protect you from making bad investment decisions or being defrauded. You need to know everything from the state of the market, to past successes/failures in the sector and location you’re looking at, as well as any mitigating factors that might influence the success of your investment.
The best investment strategies focus on the long-term. Trying to achieve quick returns inevitably ends up in losses due to the fact that the investments with the highest projected return rates are usually the most volatile and subject to decline. Look for options that have lower growth rates but more stability, and then set a long-term investment horizon and allow the returns to accumulate more gradually.
It’s best to avoid trying to time the market for maximum gains because there will always be factors out of your control that will affect your investment, regardless of whether it’s well-timed or not – not to mention the fact that most investments that fluctuate enough for their returns to be timing-based are usually volatile and necessarily unstable. Instead, make smaller regular investments and drip-feed your money – this offers more stability and plays well with the long-term approach mentioned above.
It can be fruitful to take a portion of the returns you’ve made and re-invest them into something new. This will provide more opportunities to make further gains without affecting your overall capital too much, since you are only using dividends and not the money allocated to your original investment.
Good investment strategies take planning. Setting specific goals will help you avoid risky spur-of-the-moment investments, as well as helping you understand how much risk you can afford on your next investment based on what your set goals and investment horizon are.
February 22, 2017
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