The premise behind investing is quite straightforward – buy low, sell high. It means that whatever you buy today should be cheaper than what its future value will be. But how do you determine which asset is cheap and, more importantly, which one provides the highest ROI? That’s the million dollar question that you have to answer. Nobody can accurately predict where prices of assets will be tomorrow or the day after that. Yet while it’s impossible to see into the future, diligence, patience, hard work, and following some solid investing principles can yield tremendous results over time.
Why Start Investing?
The stock market goes on a roller coaster ride every day. But as you analyze the longer time frames of stock price charts, you’ll see that it’s leaning towards an upward trajectory. Amidst the housing bubble to hit the US in the early 2000s, housing prices kept spiking up until the bubble eventually burst, causing millions of families to lose their home. Now, if a market as stable as housing can skyrocket and collapse like that, why even better investing in anything?
Investing is inherently risky, but it also has the capacity to reward those who are brave and smart enough to venture into the unknown. A well-constructed investment portfolio that is executed flawlessly throughout time can build a cozy retirement nest. And considering that inflation is steadily increasing whether you like it or not, it gives another equally essential reason for investing – not doing so can cost you money in the long run.
How to Start Investing?
Regardless of the asset or strategy, the choice to invest brings up the need for a broker. A broker acts as the middleman between you, the buyer of an asset, and the owner/seller of it. Look for a broker that is financially stable, has good platform security, and can offer the assets you are looking to buy into. Some brokers, such as Forex.com, only allow transactions involving currency pairs while others, such as Robinhood, only include stocks and, more recently, cryptocurrencies on their platform.
How to Build a Winning Portfolio?
There is no linear way to invest successfully. Throughout the decades, there have been many successful strategies that have produced wealthy individuals coming from different backgrounds.
A tip to remember is to play defensive at all times. You can only continue to invest as long as you have money. If you apply a reckless and risky approach to investing, it’ll take only a few weeks or months at most to wipe your entire account out. Practice defensive investing by pre-defining risk parameters including stop losses, position sizes, and time frames for holding onto the position.
Another tip is to diversify. The deceivingly simple technique of diversifying your portfolio is essential since it can help lower risk. If you put your entire savings of $10,000 on an auto manufacturer, you risk losing it all if the company suffers from gas price hikes, vehicle recalls, or a labor strike. On the other hand, a diversified portfolio protects you from any single catastrophe.
Yorkville Advisors, LLC is a privately owned hedge fund sponsor.