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Investing has long been one of the best ways to grow your personal wealth over a given period of time. The coronavirus pandemic brought investing to an unprecedented place with the growth in popularity and exposure of cryptocurrencies, “Meme” stocks, and the presence of internet personalities making investing seem “cool.” Due to the never-before-seen amount of free time that most people were given at the height of the pandemic and lockdowns, millions of people who had never given a thought to investing, began to do so because of the news, celebrity advice, or because there simply was not anything else to do.
What countless people began to find out was that investing is not the easiest thing to do on your own, and if you are not careful, you can get in way over your head if you do not have the proper training to make investments on your own or have not done the proper research prior to investing. But many others also found a newfound love for making investments and have watched their portfolios go on the ascension for the last year and change.
For most people, making meaningful investments is best done with the help of an expert. But investing on your own is also possible and not always a recipe for disaster. In fact, with some proper guidelines and a nudge in the right direction, starting the process of investing without a financial advisor is not that difficult. Let’s take a look at some of the basic to get started on the pathway to investing solo.
Understanding Different Investment Types
Getting started with a self-guided investment portfolio is not terribly difficult. Having success while doing so is, though. It is vital to the overall health and success of your short and long-term financial goals that you first understand the basic types of investments that can be made. If you have no clue what a stock, bond, or index fund is, then you really have no business making investments on your own.
Stocks
It is probably best that we start with the most popular and well known of all the investment vehicles: stocks. Simply put, when purchasing a stock, you are making an investment into a company in the hopes that they have success now and in the future. When the company makes money, you make money.
Bonds
When investing in a bond, think of it like allowing a company or municipality to borrow your money. Bonds are generally low risk, low reward investments.
ETFs
Exchange-traded funds, or ETFs, can be invested in much of the same way that one can invest in stocks. The big differences are that an ETF gives you access to more than one company when you invest. For example, if one invests in a S&P500 ETF, they will then have a share of all 500 companies that are part of that fund.
Index Funds
Index funds are an investment that generally provides a return that is identical to the overall growth or loss experienced by the entire market in a given time period.
Knowing which of these to invest in takes some serious thought and consideration into what your goals are and what your risk tolerance may be. The amount of money you have available to invest is also a deciding factor for what types of investments you should be making.
Key Considerations
Investors who go it alone must be well-versed in the investment world and need to do their fair share of research prior to getting started. In addition to these two critical actions, there a few other key considerations prior to diving into the deep end of the investment world.
What Type of Investor Will You Be?
You must decide what type of investor you are going to be. There are too major types of investors out there, and you’re going to need to decide if you will be an active or passive investor. There are different benefits to both types of investment types as well as risks, but your lifestyle and personal situation will factor into which you will be.
An active investor is going to be someone who researches each investment carefully and constructs and manages their portfolio on an almost daily basis. This requires a great deal of time, knowledge, and a commitment to making the right decisions. There is an opportunity to make massive gains when investing in this manner, but there is an equally great chance of huge losses.
A passive investor can be thought of as someone who sets the dial and walk away for a while. The chances of huge gains in the short-term are nearly non-existent, but there is a greater chance for success in the long-term than with active investing. If you do not have the time to do the research and monitor your portfolio often, this is probably the way to go.
Risk Tolerance
Risk tolerance is a term that relates to the amount of risk an investor is willing to take on in their investment portfolio. This will also be determined by several factors, but an investor is generally more willing to take risks in general may be more likely to pursue investments that possess greater inherent risks.
Risk capacity is simply how much risk you are feasibly able to take on. Your financial status at the time is going to dictate your capacity for risk and is usually susceptible to changes throughout your life as you look to achieve different financial and personal goals throughout your lifetime.
Your risk tolerance may stay the same your entire life, but your risk capacity may fluctuate at different points in your financial life.
Keep Goals in Mind
Whether you’re in it for the short term or the long term, keeping an eye towards your goals is essential in determining what type of investor you will be and dictate the type of success you can expect to have. Investors who are not goal oriented have an increased susceptibility to mistakes and losses that are entirely avoidable.
Investing on your own is empowering but leaves many open to making mistakes that they would not have made without the help of a professional. But by doing the proper research and laying a foundation for success, investing on your own can be a great way to minimize your costs and give you the freedom to make the investment choices you want to make at any point in time.