Opinions expressed by Minority Mindset contributors are their own.
It’s an exciting time to be an investor. The stock market has been on a strong bull run, creating new highs, and new millionaires. The market has even made a few billionaires, like CEO Rich Fairbanks—yes, that’s his real name. Investing isn’t just for corporate executives in board rooms either! With apps like Robinhood, Stash, and Acorns, the barrier into investing is greatly reduced.
If you’re completely unfamiliar with the concept of investing, it’s the process of putting money into a company, property, or other asset with the expectation that it will increase in value over time. In other words, to invest your money is to give your money a job.
Why not just get a higher paying job and forget about investing? Sounds easy, but the truth is people get tired, hungry, sick and can’t work 24 hours a day, 7 days a week. Money, on the other hand, is invincible!
Unfortunately, school doesn’t teach us anything about investing. After embarking on my own investment journey, scraping my arms, bruising my legs, and losing my mind, I’ve assembled 3 essential tips for every new investor.
1. Only invest money you can afford to lose
Imagine you’ve been reading about some hot stock that you like. It’s incredibly cheap, the team is great, and the other shareholders are equally as excited about it. Some people are saying it’s going to shoot up 1000%! You’re convinced you’ve found a hidden gem, a sunken treasure, the one stock to rule them all!
So, instead of being logical and only investing your usual $100 you decide to put in your $600 rent money. Why not? It’s guaranteed! You’ll be turning that $600 into $6000 for sure. I hope someone slaps you with a giant, red stop sign so you understand why it’s utterly foolish to do something like this.
Profits are NEVER guaranteed in any market. There will always be rumors that exaggerate an asset’s valuation, but those are only rumors. In that last scenario imagine if the stock suddenly plummeted because there was a press release about internal fraud concerns. Poof! Your rent money is gone. You’ll need to find a spacious, sturdy, and warm cardboard box to live in for a while.
2. Research everything!
This is essential! You MUST do research. There are plenty of email lists which you can subscribe to that will give you alerts on what to invest in and when. There’s nothing wrong with getting investment ideas from others, but your own due diligence is key. You need to understand the company your investing in, their team, their product/service, and their industry. It’s also a good idea to get an idea of the company’s social media presence. Be sure to get a wide array of opinions and resources too, don’t only believe one source.
All the aspects listed above impact the value of your investment. If the company has an inexperienced staff, an unoriginal product, no awareness of the industry, and zero online presence you may want to reconsider investing. Your money is your sweat, blood, tears, and time. Don’t invest it without knowing what your investing in.
3. Be logical
Warren Buffet once said, “The stock market is a device for transferring money from the impatient to the patient.” The stock market, the forex market, and the cryptocurrency market will try your patience. The market, in general, is a psychological battle ground. There will be days when your investments shoot for the moon and you’ll think you’re the best investor that’s ever breathed. Other days the market will tank, then tank some more, and then keep tanking. On those days it’s important to let the market play out. While that’s happening grab a pint of ice cream and start crying in the fetal position.
If you’ve done your research, made solid choices, and have a good understanding of the projects you’ve invested in then don’t fret. Markets rise and fall, and rise again. If you can’t take a 20% loss you don’t deserve a 300% gain.
To be clear, the market is no place for emotions. This applies to opening positions and closing them. Never open a position just because you’re afraid of missing out. Similarly, don’t feel the need to close a position if there’s a little bit of fear or uncertainty. Stay calm. Breathe. Trust your research!
Remember these are not the almighty rules of investing—there’s so much more out there! These tips are only to get you started on your own journey. To briefly recap, invest only what you can afford to lose. Don’t hastily invest your grocery money! Do as much research as you can, and form your own opinion on the prospective investment. Finally, exercise patience. Financial freedom doesn’t happen overnight; it takes years, often decades.