The results of a recent survey may be an indicator that many investors are not as knowledgeable as they should be. The results of the survey found that a large number of investors were not familiar with terms such as compounding interest, diversification, and inflation.
The results of the survey help uphold a belief shared by many that young investors are not familiar with common investing terms because they aren’t regularly discussed at home. Young investors are viewed as more likely to invest as they go along. Here is an in depth look at some investing tips that young and novice investors cannot afford to overlook.
Reaping the rewards as an investor may take time, so do not try to speed up the process. Research has shown that many investors overestimate the returns that their portfolio will produce. It takes a full understanding of the stock market to recognize the fact that investing takes time and there is a slim chance that investors will earn lucrative rewards in a quick time frame. In order to succeed, investors must develop a long term investing strategy. Investors need to learn about the differences between purchasing an investment and acquiring assets for their portfolio.
Start Investing Soon
Compounding interest can be an asset for every investor. Investors have to be able to take advantage of the opportunities as they arise. Achieving sustained success as an investor depends on creating a savings based cash flow and finding ways to increase their portfolio assets regardless of inflation. If investors wait too long before entering the market, they may attempt to make up for lost time by taking more risks, which could end up being a mistake.
The Concept of Inflation
As the inflation rate rises, people lose their purchasing power. Inflation can have a huge impact on an investor’s retirement plan. Investors should learn about inflation so that they can start budgeting for it. By investing early, investors will be in position to react positively to a changing market. More investors are guarding against the potential negative impact of inflation by investing in Treasury Inflation Protected Securities. Investing in real estate is another way that investors can avoid the negative impact of inflation.
Learn About Diversification
Investors should not have all of their assets tied up in one sector. If the sector goes into a drought, investors are at risk of suffering major losses. A diversified portfolio with multiple asset classes allows investors to avoid some of the risks associated with investing. Young investors should focus on investing in bonds, futures, currencies, stocks, and commodities. Having a diverse portfolio helps investors develop gains that they would be unable to see if they simply had a stock based portfolio. Investors should make decisions concerning their portfolio based on their timeline and risk tolerance
–Davenport Laroche, Alternative Investment Solutions Worldwide