Victoria Harris shares her top 12 investing tips for gifting yourself the gift that keeps on giving.
Delaying your investment journey is just another day lost when it comes to making money. This is due to the magic of compound interest (which is interest on interest on interest — i.e., ever-increasing profits on your investment).
ONLY INVEST WHAT YOU’RE WILLING TO LOSE
While I’m sure many of us are guilty of overextending ourselves at Christmas, it’s important not to overindulge when it comes to investing. Investing always involves risk, and therefore, the potential to lose 100 per cent of your investment.
TAKE A LONG-TERM VIEW
Long-term investing enables you to take advantage of compound interest to generate even bigger profits. As interest compounds on interest, your savings grow exponentially. You can also expect some unpredictability along the way (your profits to rise and fall), so the longer you invest for, the smoother the ride should become.
ALWAYS CONSIDER RISK
Investing is all about maximising returns (what you could earn) and minimising risk (what you could lose). When looking at an investment, always look at both the return and the risk. This will provide you with a more informed outlook on the strength and stability of the investment.
Speaking of risk, don’t put all your eggs in one basket. Diversification is the spreading of risk — meaning your money is invested in multiple baskets, and you are less vulnerable to the peaks and troughs of the market.
INVEST IN WHAT YOU KNOW
Invest in businesses you understand and leave the rest for other investors. Give it the ‘lift pitch’ test. If you can’t explain it to a friend in the time it takes to ride a lift, it’s not worth it.
DON’T FALL IN LOVE WITH A STOCK
That stock doesn’t know that you own it and it will never love you back. Always have an open mind and ensure that you regularly reassess the risks of the investment.
DON’T TRY TO TIME THE MARKET
Nobody knows what the stock market will do in the future. Anyone who tells you they do, doesn’t. Invest in a quality company and look long term. If you sit back and wait for a ‘better entry point’, you might miss the opportunity. On the flip side, if you try to ‘pick the bottom’, you could end up catching a falling knife.
NEVER CHASE A HOT TIP
Don’t listen to your hairdresser or Uber driver (no matter how good their rating is). Always do you own research (or ask an investment expert). You wouldn’t buy a car without taking it for a for a test drive, so don’t invest your hard-earned savings in a ‘hot tip’.
BEHAVE LIKE AN OWNER
When you buy a stock, you are buying a share of that business. Hence, you become a part owner of that business. When deciding what to invest in, do your research and invest in a growing business with a good management team. You will be rewarded for your investment.
PAST PERFORMANCE DOESN’T INDICATE FUTURE RETURNS
You can never assume that an investment will continue to do well just because it did in the past. This is one of the biggest warning labels when investing. Many people see a stock that has gone up 100 per cent and expect that it will continue to do so. Or they see a fund manager that has had a great year, delivered a 40 per cent return, and expect that type of return going forward.
INVEST IN YOURSELF
Take the time to research an investment before making the leap. Read the newspaper, ask questions, and don’t be afraid to make mistakes. Don’t expect to be an expert from day one. Investing is all about continually learning and building on your knowledge. Invest in yourself this season and it could be Christmas every day.