5 Fundamentals Of Investing

When trying to invest, you want to make sure you’re working with solid information. People have been investing in things for centuries, so we’ve gathered quite a lot of advice for those who are new to the investment game. There isn’t just one type of investing, however, there are many different strategies that people use to predict price movement and succeed.

To combat this, we have identified five basic principles that are true for most types of investment. No matter your investing style, something here should give you more information about investing than when you first landed on this page.

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1. You Need A Strategy

You’re here to make money, so you’ll need a strategy. You might get lucky by investing in whatever asset takes your fancy but that’s just what it is – luck. Taking advice from investment management professionals can be key here, as they will be able to help you to make smart investment choices based on your end goals and assist you in growing your wealth. A well-planned strategy can take that luck and leverage it in your favor to yield repeated earners. As we said, there are different types of investing, so which one are you? 

Value investors buy for a bargain and wait for the asset to increase in price. Warren Buffett is perhaps the most famous, who made most of his fortune from identifying intrinsic value in businesses and then buying them when they were at a discount.

Growth investors buy assets that will grow and monitor their performance, balancing value and speculation investing. Momentum investors buy assets on the uptrend and try to avoid price downtrends.

2. Diversify, Diversify, Diversify

Don’t put all your eggs in one basket, it’s as simple as that. By spreading out your cash to invest in multiple places, you can increase your chance of earning some money, assuming that all those investments were made wisely.

In most investing fields, you should be able to comfortably support 15 to 30 separate investments in your portfolio without too much exposure. Naturally, some forms of investment are more difficult to diversify with, like real estate. Others, like digital asset investing, aided by a free crypto investment guide, make it very easy to accrue and store your assets seamlessly and conveniently.

3. Think Long Term

The single biggest thing new investors get wrong is that they think short-term. They invest, short-term price movements freak them out, and they withdraw. Assuming you have identified the asset as being a winner, it can still take everybody else a while to get on board, sometimes years.

There’s a Buffett quote for this rookie mistake – “the stock market is a device for transferring money from the impatient to the patient” – and this is generally true with most investing, not just stocks.

If you never sell until you’ve made money, then you never lose unless you’ve picked a stinker that flatlines.

4. Volatility Can Be Good

Volatility is a bad word in many investing spaces and for good reason. When things get volatile in the market, people lose money, typically financial mainstays and large investors.

On the other end of those trades, however, some people make a lot of money from volatility. It can make small investors a lot of money that they’d take years to make. Why do you think cryptocurrency, and other digital assets investing, have exploded in recent years?

Keep this in mind – portfolio volatility is bad. You don’t want every investment in your catalog fluctuating but you can control that by moving cash around and trimming your investments. You can’t control market volatility so you should embrace it. Avoid overvalued assets and don’t be afraid to leap on an undervalued asset if volatility may be coming in its foreseeable future.

5. Learn Exponential Growth

Lastly, you need to learn what exponential growth is and how you can stay on the right side of it. This is a universal principle that’s also called compound growth. Think of bacteria cells splitting as they reproduce. Two would become four, four then becomes sixteen, then sixteen becomes two-hundred and fifty-six. You get the idea.

In finance, compound interest will grow your wealth much faster. If you put $1,000 in an investment and it gathers 15% interest, you’ll get $150 for $1,150. Where a simple interest scheme will still gather 15% on the $1,150, compound interest applies the 15% interest to the total $1,150 instead. This means that you then get $172.50 instead of $150.

If you blow those numbers up, you can make a lot of money from long-term interest payments.