How to build an investment strategy for beginners

Crisis times are not the best for investments? Some people think differently and benefit from it. You just need to look for new opportunities and constantly assess the risks. Let’s figure out how to start earning, build an effective strategy, and what to look for novice investors in searching for promising investment options.

What you need to know about investing

A few years ago, it was generally accepted that investing is ‘not for everyone.’ Investors must have millions and a thorough knowledge of the stock market. Otherwise, investing in securities may not be worthwhile as it can result in losing everything. But in the last few years, things have changed.

The main thing is that the entry amount for people interested in becoming an investor has dramatically decreased. Today it is possible even with small investments — for example, $250,000. There are many investment options, not just the stock market.

Investments always involve long-term planning. In times of crisis, the likelihood of risk increases. Therefore, if you decide to invest, we recommend studying the basics.

Recommendations for beginners

Decide on your goals

As in any other business, you first need to identify goals. People under 35, as a rule, tend to earn more. They often invest in high-risk assets: venture investments, cryptocurrencies, etc. If a person is 45-50, they usually invest in government bonds and other reliable instruments.

Contact a financial advisor

If you lack knowledge about investing, it is advisable to seek assistance from an expert. Imagine a person who has never driven a car. They can only start and go on their own with the instructor’s prompts. A financial advisor is actually a driving instructor, but only in the world of investments. With their help, the likelihood of crashing or having an accident is high.

Analyze risks

This is one of the most important aspects of investing. About 6% of employees in large investment companies do a risk assessment. You need to think about risks and analyze them on a daily basis. This is especially true in turbulent times when the situation is changing rapidly.

Experiment

You must always look for promising markets, niches, funds, and companies. Try different options, look for new tools, and choose what gives the best result. It’s important to keep going. As a rule, they start investing not intending to earn millions but out of interest. According to research, the main motivation for the first investment is not money. Many successful investors made their first investments simply out of curiosity and only then began to understand this topic seriously.

Look around

Peter Lynch, one of the great investors, said that the average person is much more likely to invest than a professional stock market manager. The reason is as follows — they have no professional distortion, no blurred look.

Learn new things

One of the top 6 investors in the world in terms of profitability formulated the principle: ‘Invest in what you know.’ And the more an investor knows, the more opportunities they have. Therefore, the investor’s task is to understand various business areas in as much detail as possible.

Learn the history and calm down

In times of crisis, sometimes it seems that ‘everything is lost.’ But if you look at the world’s largest stock exchanges, then their entire history of several hundred years is full of upheavals and crises. Even the most severe crises generally do not change anything in the capital market and its development. Therefore, it’s important just to take a deep breath and calm down before starting to work again.

Don’t expect miracles

Unfortunately, miracles do not happen — knowledge and constant experiments bring the result.

What are investment strategies?

Investment styles depend on the nature and characteristics of the person and change with age. Young investors have time to recover lost capital from investing in riskier assets. Older investors focus more on capital preservation and stable income because they have fewer opportunities to take risks.

Investing in the growth of market value

Most often, investors choose stocks based on high growth rates of profits or sales, but it is wrong to focus only on this indicator because high growth rates are volatile. A company can be interesting if it grows faster than the industry as a whole, but at the same time, its growth rate is not crazy. Typically, small-cap stocks rise more quickly than large-cap stocks.

Investing in undervalued companies, or value investing

In this strategy, investors select undervalued stocks based on fundamental analysis, financial ratios, and other indicators. The main idea is that shares are worth less than the firm’s assets. The most famous value investors are Benjamin Graham and Warren Buffett.

Investing in stable income is dividend stocks or bonds

One of the most famous dividend strategies for selecting US stocks is called Dogs of the Dow. According to the strategy, the investor chooses from the Dow Jones index, the ten stocks with the highest dividend yield each year.

Hybrid style

In this strategy, investors seek companies that pay dividends and grow simultaneously. Generally, these are well-established companies with a high market capitalization.

Diversified portfolio

World-renowned investor and philanthropist Ray Dalio developed the idea of a diversified portfolio that will resist any economic conditions.

The portfolio’s diverse collection of assets includes high-quality stocks, bonds, and cash that behave differently during high or low inflation, economic boom, and economic recession. Of course, you cannot get excessive returns with such a portfolio — but the risks are minimal.

Random investing

In this strategy, the investor selects companies randomly because they read on Twitter or heard from friends. Often an investor buys stocks because of the missed profit syndrome. For example, when Tesla shares go up, many people want to buy them simply because everyone is talking about them.

How to build an investment strategy. Conclusion

There are many strategies and tips, but the main thing is your goals when you think about investing. Someone likes to take risks and be in constant search. Such investors are more likely to choose cryptocurrencies. If someone wants a stable income and the ability not to be anxious — they choose real estate. Sign up for a consultation to evaluate your investment opportunities and find out why real estate is still one of the most liquid assets.