Many people mistakenly believe that learning how to invest is a skill reserved for a few special individuals. This fallacy is coupled with the assumption that investing money is a difficult, arduous and laborious process.
The truth is that anyone can reap the great benefits that come with investing. The key is to learn and master all the tricks of the trade. Thanks to the Internet, individuals can easily acquire the necessary skills and learn how to put their money to work for them. The Internet has simplified this process by making it easy to open brokerage accounts as well as providing access to free information.
Where to start
Prior to embarking on the investment journey, first-time investors need to spend some time learning the ins and outs of the trade.
The initial step should be getting a good grasp of the investment jargon. An Investment has its own language and it can be hard to understand the common terms unless an individual spends time learning them. Websites such as InvestorWords and Investopedia are crucial allies for those who are just starting out with investing online. The Securities and Exchange Commission also has an excellent website offering invaluable tips and tools to investors.
It is crucial for new online investors to open brokerage accounts with trusted brokers. The Internet is full of unscrupulous people who are always ready to con novice investors. Before giving money to anyone over the Internet, individuals should run the brokerage firm or broker through the Financial Industry Regulatory Authority’s online BrokerCheck tool to verify their validity. Alternatively, investors should conduct their own research or ask for advice from friends, relatives and financial advisors before investing with a broker.
Those who want to get started on online investment should first practice trading with fake money. This allows them to get a feel of how trading works while eliminating the risk of losing cash. Once investors grasp basic trading skills and gain enough confidence, they can graduate to using real money. Several online brokers give beginners the chance to first practice trading with fake money. Alternatively, investors can make use of online trading simulators such as Icarra.
Investment opportunities available on the Internet
The most common investment opportunities available online include:
- Bonds. When individuals purchase bonds, they are lending their money to particular governments or companies who in turn agree to give interest on the investor’s money. Bonds are attractive due to their relative stability and safety. However, since they are low-risk investments, returns are normally minimal.
- Shares or equities. When trading shares, individuals become part owners of certain companies and as such, they can receive any profits paid out by the businesses (dividends). Shares are quite volatile and can fluctuate wildly making them high-risk investments albeit with high returns.
- Mutual funds. New investors can decide to pool their money with other investors then appoint financial managers to manage those funds. These are referred to as mutual funds. The group of investors can then decide to put their money in equities, real estate, bonds or in other investment opportunities.
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What to avoid when investing online
As mentioned before, the Internet is home to some fraudulent investment promoters, and investors should always be on their guard. First-time investors should be careful not to make the following mistakes:
- Investing all their savings online. Before investing, individuals should first set aside substantial emergency funds to cushion them should disaster strike.
- Putting all eggs in one basket. Diversification of the investment portfolio is crucial since it spreads risk while offering better chances of cashing in on returns.
- Being ignorant about market changes. First time investors should take the time to keep informed about company stocks and market behavior. This information can come in handy when buying or selling stocks.
- Careless online behavior. It is very important to be careful when trading online. Care should be taken to only use trustworthy brokers and secure websites. A good antivirus is also a crucial tool for investors to have.
Investment planning and its benefits
Novice online investors ought to take advantage of investment planning to maximize their investments. They should also consider engaging the services of investment advisors to guide them through the investment planning process.
Investment planning can help both novice and experienced investors to clearly define their financial goals and objectives. Additionally, it helps individuals to determine their risk comfort levels and build comprehensive investment portfolios. In a nutshell, investment planning is vital for those who wish to effectively manage their wealth investments while obtaining maximum returns.