How to start investing: A guide for beginners

The world may be changing, and technology has improved by leaps and bounds, but the fundamentals of investing have remained stubbornly unchanged over the years. So has the importance of your money. Whether you have a small sum or a large sum to invest, your financial assets are a valuable resource. Being careful and thoughtful about how you use them is critical. That is why it is so vital for self-directed investors, especially those starting their investment journey, to do their due diligence.

In other words, take reasonable steps to ensure that you are making investment choices that are right for you. This doesn't mean you won't make mistakes - every investor does. It is simply part of the learning process. Remember that investing always involves some risk, but by following these six rules, self-directed investors can mitigate some of the pitfalls and, hopefully, get closer to making their hard-earned money grow. 

1. Have an investment plan

It may sound basic, but before you start investing, it’s imperative to have an investment plan. Are you trying to invest towards a down payment on a house? Are you hoping to fund an education? Save for retirement? Or to retire early? It is up to you to decide, but each of these goals comes with its own set of investment choices and strategies. 

Don't worry - your decisions are not set in stone. As your life plan changes, so will your priorities, and, in turn, your investment goals. As long as you have a plan, you can adapt it to changing goals and targets, shifting time horizons, and varying levels of risk tolerance. 

• Outline your financial goals, risk tolerance, and time horizons.
• Choose the type of investment account that best suits your needs.
• Use your investment plan as a benchmark for progress.
• Be prepared to reassess your investment plans based on changing life events.
• Stay disciplined and stick to your plan.

At 25 years old, our perspective will likely be different from what it might be at 45. Life changes, such as changing jobs, salaries, starting a family, buying a home, or receiving an inheritance, can prompt you to reassess your risk tolerance and time horizons for specific financial objectives.

A well-crafted plan doesn’t only serve as a benchmark for progress and for making adjustments as needed. It also allows you to make more informed decisions about the right kind of securities and investment accounts to choose, and how to diversify your portfolio efficiently based on your personal goals, time horizon, and risk tolerance.

2. Do your research

In the financial world, information is like gold - it is a valuable resource. That is why research should be a key tool for all self-directed investors. Investing in companies without understanding them is simply imprudent. Learning as much as you can about a company or fund will help you make more informed and thoughtful investment decisions. 

• Research helps guide your decisions, allowing you to make more considered choices while avoiding serious pitfalls.
• It provides an opportunity to better understand your investment choices, as well as market trends and economic shifts that could affect the value of your portfolio.
• Knowledge boosts your confidence in your investment choices.
• The more you know, the better you are able to navigate the inherent unpredictability of investing. Research is your financial GPS.

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Remember, purchasing securities without conducting proper research and due diligence can lead to financial losses and expose you to a range of unnecessary risks. Before making any investment decisions, self-directed investors should always seek out credible research resources and tools. 

3. Invest objectively

We are all susceptible to making decisions based on our emotions, but as most of us have experienced, letting feelings of fear or greed drive our decisions doesn't usually turn out too well. The same principle applies to investing. Even for seasoned investors, relying simply on 'gut feeling' is never the best strategy. Investing objectively helps ensure that self-directed investors are motivated by rational decisions, fact-based choices.

• Take a rational approach to investment decisions. This allows you to make sound choices based on facts rather than impulse or emotions, avoiding behaviour bias.
• Assess investment choices with impartiality.
• Maintain composure during market highs and lows. Stick to your plan!
• Distance yourself from market hype, rumours, and misinformation.

It is critical to avoid making impulse choices because decisions based solely on emotion can lead to financial disaster. Rely on fact-based decisions and invest objectively!

4. Consider investing for the long-term

Longer investment horizons allow you to benefit from historical market trends, despite short-term fluctuations. These extended periods also provide the necessary time to recover from potential losses during market downturns. Additionally, for those of us who aren't willing to leave our jobs and become day traders, investing thoughtfully, diversifying our portfolio and sticking with it for the long term will typically generate growth.

• Consider assigning a regular amount of your income on a monthly or annual basis towards your investment plan.
• Ensure that all your eggs are not in one basket. Diversify your portfolio!
• Find opportunities where you can benefit from compounding returns, such as stocks or exchange-traded funds that offer DRIP reinvestment plans.
• Review your investment choices annually and adjust accordingly.

Remember, short-term losses or market crashes can be significant, but historically, markets do bounce back and recover. Additionally, a diversified group of assets held for the long term will typically beat the rate of inflation. 

5. Use credible investment tools and resources

As we all know, there is no shortage of investment sources, but sorting out the noise from the substance or hearsay from fact can be difficult. A quick look at the Internet will bring up an array of get-rich-quick schemes and shady investment scams. That's why using credible and trustworthy sources for your investment information is essential, particularly if you're a self-directed investor. 

• Choose your sources wisely to obtain reliable and recognized investment information.
• Online brokers offer an array of useful tools and authoritative market analysis on their websites to their clients.
• Stay informed about market trends.

6. Improving your investment skills

Becoming a better investor takes time, and like any skill, there is always more to learn. It's important to be aware of the risks involved in investing your money while embracing the challenges and adapting to new opportunities for growth. Experienced investors understand that mistakes and setbacks are simply part of the course. 

Remember that knowledge and experience come together to make you a more seasoned and confident self-directed investor. Always stick to the six rules, and don't forget to stay informed about market trends to take your investment skills to the next level.