Part 4. Investing basics: Start investing now

PART 4. START INVESTING NOW

The psychologists have stated that the negative emotion experienced due to loss of money is twice stronger than joy from the same big win. Yes, this is true. The investment decisions are influenced by fear more than the wish to achieve success. But start investing anyway!

I often see that investors are unable to make well-considered investment decisions, as the surrounding is continuously changing. Fresh daily news make us think about new fears and create new ideas how to become rich as soon as possible. On each trading day it is possible to make a new decision and also the one that can be regretted. Thus, fear has a real power and risk has a very high price.

Investing could be surprisingly reasonable and meaningful activity. If you could do it considerately and decisively, it could be very reasonable and successful activity, as this is done by major stock market gurus whose life and income depends only on investing. They could not risk as in this case they would lose their reputation, clients and income.

I suggest to read my article on the topic of investing and speculating. In this article I am dwelling upon the topic how to avoid unreasonable risks and be a real investor. It is also important to continue learning and reading. I have put together a list of 75 Best investment books ever written, I recommend to read at least top 20 of them.

Recommendations for the beginner:

  • If you are a beginning investor, start investing from ETFs. Investment fund is actually a ready-made share portfolio. Only USA has over 10,000 different ETFs. The past has indicated that the rate of return of index funds is higher within longer period and the risk lower compared to regular funds.
  • The most up-to-date and flexible index funds are index funds traded at the stock exchange. The index funds fit for starting are for example: IVV, IEV, QQQQ, Russell.

Why not single shares? As the single share has always been connected with high risk. There is no finally secure share/company in the world. Why do investors still buy single shares?

Dealing with shares, their examination, being involved and interested in the activities of companies is instructive and exciting. Maybe you are the one who notices the next big taker before others. If the traders carry out transactions all the time, investing is easy. The transactions should be concluded only when you have detected the really suitable investment. Don’t speculate, invest! You invest only in case this is a favorable transaction and you have learned much about the company.

This is also the main reason why I deal with investing in shares.

The risk of investing in single shares decreases, if the investor’s portfolio includes more than 30 shares from different fields of activities. The risk can be reduced even more if you use time diversification of investment – to buy a share not at a time, but in several parts at different moments.

It is also possible to combine the portfolio. For example, simple rule has been suggested for long-term investor. Invest in single shares maximum 1/3 of one’s own portfolio. Use the funds, even better index shares, within at least 2/3.

3 main rules of long-term investor:

  1. Time is your most important ally
  2. Set realistic expectations for rate of return
  3. Diversify the risks between different shares, economic branches and regions

Go back to « Part 3. Investing in Stocks