Keeping Your Eye on the Prize: Tips for Beginner Investors
If you’ve jumped into the investing world, you’ve likely noticed it’s not as easy as it looks.
Here are five key things to remember for beginner investors that will help you keep your eye on the prize:
As you continue your journey and gain experience in the investing world, here are some things to keep in mind:
1. Even most experts can’t pick winning stocks
After a few successes in the investing world, it’s easy to get overconfident and to think that you have the skills to always pick new winners. But nearly all academic research says that this is false. If this is a losing enterprise for even the best stock pickers, then it probably won’t work for you, either.
2. Getting past our primitive brains
The human brain still has many built-in evolutionary functions from our hunter-gatherer days. These cognitive biases don’t mesh well with investing, often making the brain your own worst enemy. Seeing past things like loss aversion bias, recency bias, bandwagon bias, and others can be a key driver of success in bull and bear markets.
3. Resisting the urge to time the market
The temptation to time the market is contrary to what really works in investing, which is to invest for the long-term, and stay in the market. The reason: if you miss any of the best days of the market, it can completely erode returns.
4. The cost difference
The power of investing comes from annual returns compounding over long periods of time. While this is largely driven by investment performance, it’s also important to realize how much costs can play a role – in fact, high costs can cut a portfolio’s return in half!
5. Getting risk tolerance right
You want your portfolio to have the highest average return, given the highest risk you are prepared to accept. If you take on too little risk, you will not make headway on your journey to financial independence – and if you take on too much, investing will seem like an uncomfortable roller coaster day-to-day.
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