Strategies You Must Know When You Start Investing

After saving up enough money to make that purchase, anyone can start investing to create a secondary income source. Buying and selling on the stock market, in Forex, cryptocurrencies and the like isn’t actually all that difficult. The complications start to arise when you want to actively think about how you’re managing your investments. As such, there are a few strategies and concepts that you should take the time to make sure that you stand to make some money, not simply spend it in the markets.

Diversification

The number one thing that every investor should keep in their mind when they start trading is to make sure that they’re diversifying their investments. This doesn’t mean just investing in different industries that aren’t likely to be affected by one another. It also means investing in markets and assets that won’t be affected by any dips hitting the assets you already have.

For instance, you should have some of your money in bonds, in forex, and in real estate, rather than just putting it all into the stock market. As such, if one market gets hit for some reason, at least your other investments aren’t as likely to be affected, ensuring that you can’t lose it all due to a downturn in the market.

Risk management

Diversifying your portfolio is just one way of making sure that you’re not putting all of your money at risk. When it comes to individual investments, risk management is the act of identifying and analyzing the risks with certain decisions.

Every investment has some degree of risk inherent to it, but working with teams like https://www.veracitycapital.com/services/risk-management/ can at least help you understand how much risk you are taking. This can help you make sure that you’re not leaving too much money on the table, so to speak.

Depending on your investment goals, you can talk with risk management service providers about what your risk tolerance is, how much volatility is in your portfolio as it stands, and what you can do to manage that to an acceptable level for you.

Stop orders

As mentioned, there is a level of risk inherent in every investment. That risk comes, naturally, in the loss of value in assets, causing the value of your portfolio, overall, to drop. Time should be spent monitoring your investments to identify losses and gains and to act appropriately. You shouldn’t always sell just because an asset decreases in value somewhat, but you should have a limit.

When you know your limit, you can automate the process of acting on it. Stop-loss and stop-limit orders are two ways of automating how you prevent yourself from losing too much money.

The most basic kind is a sell-stop order which sells an asset automatically if its value falls below a point that you no longer want to keep it, but https://www.investopedia.com/articles/active-trading/091813/which-order-use-stoploss-or-stoplimit-orders.asp goes into more detail about the different kinds of stop orders you can use.

Dollar-cost averaging

The core of successful investing, as some would put it, is to “buy low, sell high.” However, there might be an investment opportunity that you have been looking at for quite some time.

You expect that it will balloon in value at some point, but you don’t want to buy it when it’s high in price. But waiting to buy a lump sum when it’s at its lowest is a risky manoeuvre because you might not catch it at the price you want. When done well, dollar-cost averaging sees you making those purchases in the asset at regular intervals, in the same amounts, regardless of the current price. As such, sometimes, you might be buying it at above its current average value, but you’re also regularly buying it at below-average value, meaning that the average should even out to make a decent investment, especially if it does later rise dramatically in value.

Options

Options take a while to explain, so it’s best to do your own research but if there is an investment that you want to put money into, but it carries a significant level of risk, options can be used to mitigate that risk.

For instance, you can place a put option on a stock that you, which is effectively a speculative investment, “betting” that it will lose value. As such, if the stock rises in value, then you get money from the increased value of the stock, but the put option can help you regain some of your money back if it decreases in value, instead.

The above techniques and strategies are just some that you need to consider implementing when you start investing. There are plenty more, so be sure to keep doing your own research, keep learning, and keep applying what you learn in real-time to improve your fortunes.