Since ancient times, people have continuously pondered how to become wealthy. Throughout history, an immeasurable number of different methods have been devised. Today, the most popular way to increase capital is through investing. Investments have become especially popular in the 21st century.
Although this topic requires knowledge, skills, and perseverance, many believe that investments for beginners equal instant, fabulous profits. This is not entirely true. No one can guarantee you a huge profit. With the proper use of theory and practice, you can invest and earn money. However, there is another side to the coin.
Some people who want to engage in financial investments face a psychological block when they see how much they need to learn to become an investor. In reality, any initiative requires both mental and financial investment.
So, what should be done? If the path of an investor is so difficult and thorny, isn't it easier just to save money the old-fashioned way?
The difference between investments and savings: both are important aspects of a person's financial life.
Saving means you deduct a part of your income and keep it in a fixed form until you need it.
As for investments, it involves directing some or all of your money into a specific sector to generate profits.
Consequently, we believe that investments and savings complement each other, and balancing them is necessary for financial well-being.
On the contrary, one should not lean excessively towards savings, in other words, just putting money aside from your salary. The level of global inflation can devalue your assets, preventing you from making the planned purchases.
In summary, to succeed and increase profits, it is important to correctly distribute the ratio of funds between investments and savings (although savings should also yield a small profit, for example, through bank deposits). Notably, savings play no less important than investments, as they can be a financial cushion in unforeseen circumstances.
Investments for beginners
In this section, we will take a closer look at the concept of investments, and their history, explore the different types of investments, and try to answer the main question: what is investment?
Currently, investments influence the economies of countries and the global economy more than any other factor. It should be noted that, according to the opinion of most people interested in this topic, investing is the primary source of abundance and prosperity, sought after since ancient times.
According to the official stance of most economists, investments are one of the most important factors that determine the financial growth and prosperity not only of an individual but also of a state as a whole.
In simple terms, an investment is the allocation of funds into a valuable asset that, in the investor's opinion, can yield more money in the future.
We can also discuss the definition of two approaches to investments.
Economic approach
From an economic standpoint, investments involve acquiring low-cost goods, taking into account factors such as inflation, rising production costs, and economic indicators that may signal future demand for these goods. After some time, they are sold at a higher price, thus generating profit.
Financial approach
From a financial perspective, investments entail acquiring financial assets that can increase in value over time, considering factors like demand and supply, stability, and popularity of the assets. This leads to the sale of these assets at an increased price, thereby implying a profit from the difference between the purchase price and the sale price. There is also the possibility of maintaining the asset's value, especially in the case of stocks.
How to start?
In this section, we will elaborate in detail on the steps for someone who wants to answer the main question of such a complex and interesting world as investments: where to start? We'll discuss preparation for beginning work and talk about the main pitfalls of this profession.
Notably, preparation begins earlier than studying information about investments or watching webinars with experts.
Preparation starts with assessing the financial capabilities of the prospective investor.
- Before starting, ensure that you do not have debts from loans, mortgages, and other obligatory payments. The reason is that it is more rational to use the amount you want to invest to pay off all debts. This is also an investment in your independence.
- Ensure that you have prepared a safety net. This refers to a sum of money that will help you in unforeseen situations. Even with proper preparation and practical skills, you might face market volatility, and unexpected news adversely affecting the country’s economy.
- Mentally prepare yourself that investment may not be the main source of income for some time, or perhaps even a long time. While you are practicing, gaining experience, acquiring knowledge, and testing different trading strategies, trading will not bring you huge profits. Therefore, it is important to be patient, and disciplined, and not give up.
- Start your career with small investments. Many beginner investors believe that investments require tens of thousands of dollars. This is not true. In the beginning, $100-200 is enough to immerse yourself in and learn about the interesting and changing online market. There's no need to save for a long time and then, without real trading experience, lose your first deposit.
Before you start, make sure that you have no loan debts, you have some money for unexpected expenses, do not expect miracles of becoming rich quickly, and start with small investments.
Are stocks best solution?
In this section, we will discuss which asset to choose for investments or whether it's worth diversifying, i.e., diversifying your investment portfolio. Investing in stocks for beginners can be both an excellent decision to gain basic knowledge about the online market and the necessary trader skills, and a rash decision that can cost a novice all their invested funds. Much depends on the person's character, mindset, initial capital, and investment preferences.
Let's first understand what stocks are.
Stocks are a type of investment that represents ownership in a company. The principle of selecting and acquiring stocks is as follows: investors choose stocks whose price may rise over time.
Notably, the average return on stocks is 10-12% per year. This means that currently and shortly, the return on stocks outweighs global inflation.
Now, let's understand how stocks work.
Public companies issue securities and trade their stocks on stock exchanges, such as Nasdaq, and NYSE. In some cases, this is done to advertise the brand, in others, to raise additional funds for debt repayment, financing new projects, or business expansion.
Investors, in turn, choose the most promising companies and buy their stocks hoping that their value will increase, and they will earn from the difference between buying and selling.
Stocks can rise in several cases:
- The company achieves long-term success.
- The company's top executives publicly announce grandiose and feasible plans.
- The world economy or the country's economy favorably influences the corporation's affairs.
- Impressive growth prospects, according to most experts.
We discussed whether beginner investors should buy stocks. Yes, they should. But a more correct decision would be to diversify the portfolio. This way, the trader can study the world of online trading as widely as possible, choose the ideal asset for themselves, and diversify risks. This means that a person can redistribute invested funds so that in case one asset falls, they will not lose the entire deposit.
Investing books reading list
In this section, we will explore the sources of information that can help a beginner investor enter the world of trading. This chapter is dedicated to best investments books. Let's take a look at seven world bestsellers on investments for beginners.
1. Burton Malkiel - The Random Walk Guide to Investing: Ten Rules for Financial Success
This book provides investment instructions for beginners by Burton Malkiel, a renowned economist from Princeton University. Malkiel offers key advice to minimize risks in investing.
Each rule is dedicated to a separate chapter in the book, illustrated with numerous real-life examples.
2. Benjamin Graham - The Intelligent Investor
This globally popular book reveals the fundamentals of value investing.
Graham focuses on the psychology of the investor, highlighting the importance of traits such as prudence and tolerance. These attributes are necessary for making reasoned decisions instead of impulsively following emotions.
Warren Buffett, one of the greatest investors of our time, regards The Intelligent Investor as one of the most significant works in the field of investments.
3. William Bernstein - The Investor's Manifesto
William Bernstein's book discusses the principles of building an investment portfolio. It aims to teach the reader how to avoid financial pitfalls.
Bernstein shares his vision for successful investing and explains why investing is important.
According to the author, the goal of investing is not rapid wealth and luxury, but securing a comfortable old age.
4. Edwin Lefèvre - Reminiscences of a Stock Operator
The main character is inspired by Jesse Livermore, a prominent trader of the last century. The book narrates the life of a financial adventurer from youth to maturity. The life journey of the main character offers lessons on the difficulties of investing for beginners, what methodologies brought success, and which ones led to failure.
This is not a guide to stock trading, so specific advice is absent. However, it contains many valuable ideas worth considering. For example, the protagonist does not rely on financial advisors, preferring to analyze the market situation and make decisions independently. This way, he maintains his ability to trade without external expert opinions.
5. Alexander Elder - How to Play and Win at a Stock Exchange
Alexander Elder, a recognized master of stock trading, asserts that three key elements determine a trader's effectiveness: understanding psychology, mastery, and understanding of technical analysis, and capital management. In his work, he thoroughly examines each of these aspects.
Elder explains what the stock exchange is, how to correctly interpret charts, manage one's funds, and why it is important to be aware of one's psychological state. The final pages of the book include exercises for each section to help readers deepen their understanding.
6. Jeremy Miller - Warren Buffett's Ground Rules
Warren Buffett, a distinguished investor from the USA with a net worth exceeding one hundred billion dollars, wrote letters to his partners from his first partnership BLP, established in 1956.
The compilation and analysis of these letters were undertaken by Jeremy Miller, an investment expert, not Buffett himself. The structure is as follows: first, Buffett's letter is presented, followed by a detailed analysis by Miller. Thus, the book makes it clear that Buffett is critical of those who try to predict market movements and base their investment decisions on these assumptions. He believes that such actions are not only futile but can also lead to capital loss.
7. Brett Steenbarger - The Psychology of Trading
The main message of The Psychology of Trading is that a person can recognize and control the internal attitudes that lead to defeats and stand in the way of achieving goals. At the beginning of the book, Brett Steenbarger focuses on the idea that instead of fixating on difficulties, one should concentrate on methods of solving them. This approach helps avoid getting stuck in pessimism and effectively overcome obstacles.
The author has experience as a psychotherapist and trader. In the text, he presents anonymous stories of his patients who faced various difficulties. Some were concerned about losing their money, while others feared failure. By analyzing these stories, the reader can see a reflection of their own experience and apply the lessons learned to their practice.
So, we have reviewed seven popular books that will help us understand the world of investments and online markets a little more. It's important to emphasize the need for continuous learning and self-improvement for an investor. The world of online trading requires constant focus and engagement, so it's vital to always stay informed and learn.
Webinars as quick way to learn about investing
Webinars are also an important method of learning. Such conferences have become a staple in our lives in the 21st century. Indeed, it is very convenient and beneficial when someone explains a topic in real-time and answers questions during the process. We smoothly continue discussing the important topic of investments. Currently, learning through webinars is the most popular method.
Attending an investment webinar can provide practical trading skills and help in choosing or creating a trading strategy. Let's look into this in more detail.
Let's categorize all webinars into three types: Introductory, Educational, or Practical.
Introductory investment webinars
For instance, if you're just planning to acquaint yourself with the world of investments, it makes sense to attend introductory webinars. You'll become familiar with new terminology, learn more about how investments work in general, how professional traders make deals using leverage or risk reduction strategies, and gain a basic understanding of all the processes happening in the stock market.
As you might have guessed, this type of webinar is suitable for beginners or people who are just starting to show interest in the world of investments.
Educational investment for beginners webinars
The name speaks for itself — this type of webinar is suitable for more experienced traders who are seeking new knowledge, skills, and strategies.
If the introductory webinars were essentially non-committal, as participants are just starting their trading journey, educational webinars usually require concentration, having questions, and a notebook for notes.
Most educational webinars include a Q&A session at the end, and every participant can ask questions without hesitation.
Practical investment webinars
Again, the name is self-explanatory. This type of webinar is suitable for professionals. The information is presented differently, with brief and clear descriptions of technical aspects of various trading strategies or trading techniques. In these sessions, professionals look for new trends and techniques. They ask many clarifying questions and try to apply the trading strategies they learn in practice right away.
Stocks
This section is dedicated to one of the most popular assets in the world of online trading — stocks or company securities. We have already touched upon the topic of stocks; here, we will discuss how much income investments in shares can bring and delve more deeply into this topic as a whole.
An investor acquires securities to invest in a company's business and earn money. There are two types of securities: common and preferred, with the difference being in the advantages for the holder.
Common securities give the holder the right to vote at owners' meetings and participate in profit sharing, though dividends are not guaranteed.
Preferred securities, generally, do not provide voting rights at general meetings, with some exceptions, but yield profits through dividends.
Key features of securities:
- Profitability — a combination of dividends (a portion of the profit paid by the company) and/or an increase in value.
- Base value — indicates the volume of the company's principal capital.
- Liquidity — the chance to quickly sell or buy at a value close to the current market rate.
- Current market value — determined based on stock exchange quotations and the balance between demand and supply.
For successful online investing, it is recommended that the investor develops a clear trading concept. It is important to realize that absolute protection against risks does not exist, but minimizing them is entirely possible.
Key aspects that traders need to consider and analyze include: setting goals, assessing potential losses, determining financial expectations, evaluating one's attitude towards risks, expected return level, and investment duration. Investors should understand that the ability to sell stocks profitably at any moment, that is, without significant losses and quickly, is determined by the overall market condition, not personal wishes. Thus, even with an interest in selling, there may not always be a sufficient number of buyers. At certain times, the market may be oversaturated with buyers or, conversely, have a deficit, which affects the buying and selling of stocks.
Cryptocurrency
This section is dedicated to the most discussed asset for investments - cryptocurrency. It's important to note that this is a very ambiguous object for investment. However, many experts insist that a trader's portfolio should include investments in cryptocurrency. Let's explore this trading instrument, and learn about its history, main advantages, and risks.
The beginning of the history of cryptocurrency is generally considered to be the creation of Bitcoin in 2009 as a payment system. Over time, Bitcoin itself became a currency.
Since its inception, many experts predicted its rapid demise. However, despite these forecasts, cryptocurrency has shown resilience. In the context of global changes, this market segment maintains its position.
The development of the cryptocurrency market is facilitated by:
Independence from the traditional market
Unlike the standard financial sector, the digital coin market is not tied to other assets, meaning it does not react to fluctuations in other investment instruments. Therefore, investors increasingly see Bitcoin as a reliable asset during periods of economic anxiety.
24/7 trading
This market operates continuously, eliminating the need to conclude trades at the end of the workday or week. Additionally, market participants decide what time is most comfortable for them to work.
Volatility
One of the key features of the cryptocurrency industry is its volatility. While in Forex, prices rarely change more than 1% in a successful session, the value of cryptocurrency can significantly increase within a day.
Decentralization of assets
In centralized systems where operations are under the control of banks, regulatory bodies, and the government, funds can be frozen. In systems based on cryptocurrency, this risk is minimized. Once operations are approved, funds are directed to an electronic wallet, and it is impossible to cancel the transaction.
Based on the above, cryptocurrency appears to be an important tool in online trading. Nevertheless, it's important to remember the instability of the global market and the risk of losing investments.
Gold
This section is dedicated to the noblest asset - gold. People began to mine it in the fifth millennium BC and use it as a currency. Investment in gold emerged later, but for nearly 8000 years, gold has remained popular and one of the most reliable trading instruments. Let's explore the history of gold, its advantages and disadvantages, and its place in an investment portfolio.
Historians believe that systematic gold mining began in the Near East, and it was from there that gold artifacts were delivered to Egypt. In Egypt, in the tomb of Queen Zer, as well as with Queen Pu-abi in Sumerian culture, some of the oldest gold jewelry dating back to the 3rd millennium BC was discovered.
Throughout its history, humanity has mined approximately 161,000 metric tons of gold, with a total market value of $8-9 trillion.
Let's take a look at the types of gold that people invest in.
Gold bullions
In the past, a gold bullion was a symbol of wealth and success.
Advantages:
- Real gold that can be stored anywhere.
- No 20% VAT for private individuals.
- Cancellation of 13% personal income tax (PIT) for up to three years of ownership in 2023.
Disadvantages:
- Loss in value in case of damage (up to 20%).
- Up to 10% difference in buying and selling prices at banks.
Gold coins
Advantages:
- Ideal for collectors or unique gifts.
Disadvantages:
- A significant difference between buying and selling prices.
- The need for careful storage and additional expenses for safes.
Unallocated metal account (UMA)
A bank account where the balance is measured in grams of gold.
Advantages:
- Guaranteed safe storage.
- No need to rent a safe.
Disadvantages:
- Up to 10% difference in prices when selling.
- Lack of insurance for such an account.
Gold futures
Futures contracts for gold with a fixed price and delivery date.
Advantages:
- A liquid asset.
- Low fees and a small difference in buying/selling prices.
- The possibility of increasing income through leverage for experienced traders.
Disadvantages:
- Not suitable for long-term investments.
- Increased risk when using leverage.
In conclusion, we have explored the types of gold investments for beginners, studied the history of their emergence, and discussed which asset is best to invest in. Should you invest in gold in 2023? Absolutely yes. The more diversified an investor's portfolio is, the better, as other assets can balance the entire portfolio in case of a downturn in one asset.
Real estate
In this section, we will examine a type of investment that may seem to require less attention at first glance. It is a real estate investment. Let's explore the types of real estate investments, their advantages and disadvantages, and the relevance of investments in 2023.
Types of Real Estate Investments for beginners:
1. Buy for resale
Investors purchase residential or commercial real estate to resell it at a higher price. They profit from the difference between the initial cost and the cost determined considering inflation, repair expenses, maintenance, and selling the property.
Advantages:
- Reliability. Well-selected residential and office spaces are always in demand.
- Investment safety. Even during economic fluctuations, you can either rent out the property or sell it.
- Inflation protection. Like gold, real estate is less susceptible to inflation risks; its value tends to increase.
- Investment flexibility. Multiple strategies for increasing income, such as selling or dividing into separate units, are available.
Disadvantages:
- High initial cost. Significant capital is required to acquire real estate.
- Extended investment payback time. Profit over and above the invested funds usually starts coming in after several years.
- Unaccounted expenses, including utility bills, repairs, and tax payments.
2. Buy for rent
Investors acquire residential or commercial real estate to rent it out, providing them with monthly income.
Advantages:
- Long-term profitable investment. If the property is in a liquid location (where infrastructure is developed), it is likely to remain in demand for a long time. It can be a good investment for beginners if they have a substantial amount of money.
- Increasing selling price. In case the investor needs to sell the property, considering its liquidity, they can sell it at a much higher price.
- Passive income. There is no need for active involvement to generate income from owning the property.
Disadvantages:
- Time spent on property management. Dealing with tenants, ongoing repairs, and communication with utility services can consume a significant amount of time.
- Long payback period. Given the expenses for purchase, repairs, and maintenance, a full return on investment may take more than a year.
We have covered the most popular types of real estate investments. Let's also briefly discuss other types, their advantages, and disadvantages:
Land plots
Land plots are relatively easy and profitable to buy and sell. They do not require repairs, and their cost is much lower than other types of real estate. There are no extra expenses. Considering the growing interest in living in private houses, the most profitable type of land plots for sale are those intended for development.
Private houses
As we have already learned, many city residents want to move out to the countryside, and thus, they are looking for ready options for suburban houses. This type of real estate will remain popular in 2023.
Newly constructed houses
Prices for such housing differ significantly from the final prices, usually in a lower direction. This type of real estate is also popular and is likely to remain so for a long time. Low prices for such apartments are because buyers will have to wait longer for the property to be completed.
Parking space investments
This type of real estate can be considered commercial real estate. Potential investors often choose the location with the demand for parking spaces near shopping centers or other crowded places.
In conclusion, we have examined the types of real estate investments, their profitability, liquidity, and the amount of effort required. It can be confidently stated that investing in real estate is not only possible but also advisable, except it is your sole asset.
Venture capital
This section is dedicated to the most innovative and risky type of investment, the name of which speaks for itself. The term "venture" means to risk, to put on the line. First, let's understand what venture investment means.
Venture capital or venture investments are a form of financing for new businesses or startups that are characterized by long-term return on investment and are inherently quite risky.
To be considered venture investments, there are several conditions:
- Innovation: The project brings a fresh perspective by offering a unique solution that was previously unavailable in the market. It introduces revolutionary technology that could shape the future. This includes treatments for previously considered incurable diseases, as well as new methods for processing plastics or other materials.
- Cutting-Edge Technology: The company's offerings or services align with modern technological trends. Currently, in-demand fields include biotechnology, nanotechnology, genetic research, artificial intelligence, and green energy. However, industries dealing with traditional methods of hydrocarbon extraction have lost their status as cutting-edge, despite once being at their peak.
- In addition, cutting-edge products often come with high costs, ensuring the profitability of the business with minimal expenses. It's no coincidence that the two main technological sectors in the S&P 500 index - IT and healthcare - have dominated the index for the last decade, together accounting for over 40% of its total capitalization.
- Scalability: Such organizations have the potential for broad expansion, extending their presence internationally. Attracting new customers does not require additional investments. This allows the business to exponentially increase its revenue. Consequently, the company can effectively operate in different cities and countries without being limited by physical presence.
Notably, this type of investment is the riskiest, and 70% of startups go bankrupt within ten years. On the other hand, successful investments in enterprises that easily pay off can more than offset all losses and costs, even yielding profits that far exceed the expenditures.
Investing in enterprises
In this section, we will explore a type of investment that traders often turn to after several years of active online trading. Sometimes, entrepreneurs also consider this when they become tired of their current business. These are direct investments. Let's begin by understanding what they are.
Direct investments are investments in companies or production (goods and services) that allow participation in the management of the company through a representative in the leadership and also allow for income from the company's profits. It's worth noting that direct investments are considered when the investor acquires at least 10% of its shares. This allows active involvement in the company's affairs, such as attending board meetings. Nowadays, more and more people prefer this type of investment.
Most often, such investments are made through special funds known as Private Equity. These funds collect money from various individuals, invest them in companies, and after 3-5 years, sell their shares, returning profits to the people.
There are three types of direct investments:
Vertical Investments: These investments are made to create independence for the company, ensuring it has all the necessary materials. For example, when a car manufacturing company buys a leather factory instead of ordering ready-made seats.
Horizontal Investments: These investments are aimed at expanding the business, such as expanding the geographic reach, opening branches in other countries or cities, and extending the logistics chain.
Conglomerate Investments: These investments involve creating new businesses or acquiring existing ones. Such enterprises may not be related to the primary business direction. Conglomerate investments can also involve mergers or rebranding.
Investment portfolio
This section is about how to minimize possible risks if you are an investor. Here we will talk about the concept of portfolio investments. Let's start by understanding what this is.
An investment portfolio is a set of assets acquired by a market participant to gain benefits. In a narrow sense, this term refers solely to investments in stocks or the stock market, but in a broader sense, it includes purchases of real estate, physical gold, bank accounts, participation in enterprises, and other resources.
The primary goal of diversification investments for beginners is as follows: capital is placed not only in one asset, resulting in the minimization of potential losses while maintaining income levels. This approach to resource allocation is called the diversification strategy.
The founder of this investment concept was Harry Markowitz. He made a significant contribution to the scientific community by publishing research on this topic, such as "Portfolio Selection." The main idea of his work was that a resource complex should be created based on a combination of income and risk levels.
Types of investment portfolios
Conservative portfolio
The main goal of this strategy is to protect capital and minimize risks. Income should only slightly exceed inflation. Due to a large capital, even a modest stable income is suitable for the investor.
Assets that may be included in a conservative portfolio: Precious metals, blue-chip stocks (stocks of stable and expensive companies), and shares of reliable companies.
Balanced portfolio
When creating such a portfolio, traders aim to maintain balance and stability by investing in assets of reliable and stable companies (as in the conservative portfolio) while also buying stocks with a higher degree of risk but a greater profit potential.
Funds that may be included in a balanced portfolio: index funds, mutual funds, commodity funds, and bonds.
Aggressive portfolio
The name speaks for itself. The goal here is to accumulate a large number of risky but potentially profitable assets and obtain income that exceeds the investments several times over time.
Assets that may be included in an aggressive portfolio: startups, unstable bonds (promising higher profits) and initial listings.
In conclusion, we have explored the concept of portfolio investments. Is it worth using this approach for risk diversification? Perhaps it is. Each trader chooses their strategy.
What brings more profits?
We have discussed the most popular types of investments and learned how to prepare to become a trader, and now we need to answer the question: what are the most profitable investments?
Unfortunately, there is no definitive answer to this question. However, let's recall what we have learned and make a conclusion through logical reasoning.
So, here are the main types of investment training that are in high demand: stocks, cryptocurrencies, real estate, venture investments, direct investments, and investment portfolios. Each of these assets has its advantages and disadvantages. Let's refresh our memory with this information.
Stocks
Advantages:
- The potential for earning from the increase in stock prices. Quality stocks in a stable or growing economy typically appreciate.
- Regular income from dividends. Large companies regularly distribute part of their profits to shareholders. On average, dividends can reach up to 50% of the organization's profit.
Disadvantages:
- The sensitivity of stocks to various factors leads to high volatility. Minor changes in the industry, market, or the company itself can cause significant price fluctuations, resulting in losses for investors.
- Complexity of the dividend formation process, which may not always be transparent to shareholders.
Cryptocurrency
Advantages:
- Confidentiality
- Decentralized system
- Stability
- Fast transactions
- Low fees
- Attractive investment opportunities
- Protection of funds from devaluation
Disadvantages:
- Price volatility, typical for new assets
- Increasing computational complexity reduces the efficiency of the process
- The lack of guarantees makes cryptocurrency a high-risk asset.
Real estate
Advantages:
- Long-term stable income
- Accessibility to many investors
- Easy conversion of real estate into cash
- Many options for investments
Disadvantages:
- Dependence on the economy's demand for real estate
- High real estate prices
- Lack of interest in certain regions
- High maintenance costs.
Venture investments
Advantages:
- Potential for high returns
- Rapid return on investment if the project is profitable
Disadvantages:
One of the riskiest types of investments. There is a possibility of losing everything.
Direct investments for beginners
Advantages:
- High and stable income
- The opportunity to participate in the management of the company
Disadvantages:
- High entry threshold for this type of investment.
Now, we are approaching the concept of an investment portfolio or diversification portfolio.
Investment portfolio
Advantages:
- The possibility to minimize risks to the maximum
- The opportunity to increase income with the right asset allocation
Disadvantages:
- The possibility of losing income from key assets if the portfolio is over-diversified.
In conclusion, many industry experts recommend adhering to the principle of diversifying assets to reduce risks and potentially increase profits in the long run. However, each trader chooses their trading strategy independently.
Opening trading account
Now, we have studied many sections about what a beginner trader needs to do. We have learned how to prepare for work, what types of assets exist, what influences them, what educational materials are available, and how to diversify a portfolio. But one thing may come as a revelation to you: investments require having a registered trading account. In this section, we will learn how to open a trading account and what to look for when choosing a broker.
A broker acts as an intermediary between the trader and the financial market, facilitating transactions. Cooperation with a broker usually comes at a cost, in the form of a commission for executed trades.
How to choose a broker
Before opening an account, you need to choose a broker. At the moment, there are tens of thousands of brokers worldwide. Since choosing a broker to collaborate with can be one of the most important decisions in a trader's career, you should carefully consider all factors: the broker's reputation, company history, the presence of a reliable regulatory body, matching real trading conditions with stated ones, the behavior of company representatives on social media, support chats, and trader reviews.
Once the choice is made, let's learn how to open a trading account:
- Fill out a small questionnaire on the broker's website.
- Next, you need to verify your trading account.
Account verification is a mandatory procedure common to all regulated brokers, confirming you as the account owner. The verification process is called "Know Your Customer" and is a measure to comply with anti-money laundering (AML) and counter-terrorism financing (CTF) laws. To pass the check, you need to provide an identity document (passport/ID) and proof of address.
- The last step is to fund your account or make a deposit.
Usually, it ranges from $100 to $200.
Some brokers often provide free demo accounts, allowing beginner investors to learn about the financial world and test trading strategies without risks or investments. This is an excellent opportunity to enhance your skills in conditions close to real trading.
Conclusion
We have explored the extensive topic of investments. We have learned how to get started, which assets to choose, where to invest money in general, and what investments look like for beginners. Investing your funds helps you effectively combat inflation, increasing the likelihood of preserving your purchasing power in the long term.
When you invest, your funds generate income through the mechanism of compound interest. This means that all your earned profits are reinvested, resulting in even greater returns. The earlier you start investing, the more benefits you'll reap from the principle of compound interest.
However, before you embark on investing, it is essential to understand its significance and remember that education in investments for beginners and continuous self-improvement are essential for any trader. Give preference to the wise advice of experienced investors or trusted opinions from educational courses, while avoiding spontaneous recommendations from dubious sources. Don't forget the need to diversify your investments among various types of assets to reduce risks, known as diversification.
Investing does not have to be overly complex. It's crucial to avoid decisions driven by emotions such as speculation, anxiety, or fear because they often lead to significant losses and increased risk. Beginner investors should exercise patience and adhere to consistency.
The key point is understanding the reasons why you are investing. Every investor should have clear goals, and these goals should always be at the forefront. This approach will help you achieve great heights and build a diversified investment portfolio.
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