How to start investing and saving money: Dow Jones experts have identified five major mistakes of novice traders
Dow Jones & Company experts in the online magazine Marketwatch listed common mistakes made by novice investors. We bring to your attention the pressing of the main ideas of this material.
1. Invest in one asset
Advice not to put all the eggs in one basket may seem trivial, but a novice investor does not always imagine what a well-diversified portfolio is. The main rule is to invest in different financial assets, both by instrument type and currency.
The portfolio containing Russian and foreign, large, medium and small assets, stocks, government and corporate bonds, brings a more stable income, because it is protected from the decline in the value of individual assets. Balancing high-risk assets less profitable, but more stable, will also make the portfolio more reliable.
To simplify the process of entering the securities market for those who are frightened by a variety of financial instruments will allow investment in index and exchange-traded funds (ETF). Buying shares of the fund, in fact, you acquire a "set" of shares of companies included in the index. This is already a diversified portfolio, which is much easier to manage.
2. Do not analyze commissions and fees.
Investments involve not only generating income, but also paying part of these amounts for the very opportunity to trade on the stock exchange. Investor costs are broker commissions for the sale, purchase and other actions with assets, annual payments to the management company (in the case of mutual funds), financial consultant services, taxes. The more you pay to invest, the less income you get.
3. Make emotional decisions
Working in the securities market will keep you abreast of what is happening, however, investments made under the influence of newspaper headlines can lead to trouble. Some bad news may force you to sell assets when prices fall, and good news may push you to buy at an inflated price.
Scientists have noticed that traders often begin to relate to their assets emotionally, “attached” to certain companies. Fear, regret, panic, impatience lead to irrational decisions and loss of money. Keep your emotions under control by building a clear long-term investment plan, which you are ready to stick to no matter what is happening now.
4. Start without understanding
Emotions can also push you to get down to business without postponing it for tomorrow and not wasting time studying the issue. Our brain is designed so that fast profit seems to us more attractive than a larger, but delayed in time.
Such an approach to investment is dangerous. You will need time to develop an investment strategy that you can rely on in moments of doubt, you need to study the market, its trends and opportunities. If you are not able to deal with something on your own, contact your financial advisor, and practice your knowledge using a demo account to consolidate your knowledge.
5. Be arrogant and self-confident
Excessive self-confidence is typical for those who think that they know everything too well. Even an experienced trader can not always predict the market jump in a timely manner. Do not invest all your savings even in the most promising, in your opinion, assets and do not use leverage in the first transactions. For a newbie, a diversified portfolio and a well-thought-out investment plan are much more important than courage and risk taking.
Do not ignore the risk management tools that minimize risks when trading on the exchange. For example, in the SMARTx trading terminal developed at ITI CapitalThere is an integrated risk management module. It is possible to set settings in it that will prohibit issuing new orders and opening positions on a specific account, in case of violation of the established restrictions - a certain loss, etc. You can test his work on a special demo account with virtual money - thus eliminating the risk of monetary losses during the training period.
In addition, some trading terminals (in particular, SMARTx) can automatically protect open positions - for example, place stop loss / take profit orders that allow you to limit loss or take profits, or a “sliding” stop order that “pulls up” following the price of the asset, allowing you not to rearrange the stop order manually - it also helps reduce risks (with a completely “manual” trade, you can simply forget to protect the position with a deferred order).