But the situation in the global financial market is so unstable that it makes no sense to simply save up funds: they can depreciate in an instant. And in order to save your hard-earned money, you need to invest it successfully. This is the only way to make them “work”, that is, to multiply. But in order to profitably invest money, you need to take care of creating your own investment portfolio.
How to choose the type of investment portfolio?
Before proceeding with the formation of your own investment portfolio, you should first clarify what this concept includes.
So, this term is used to denote the total investment in various areas in order to minimize the risks of losses.
Each of the investments (be it currency, securities, deposits or real estate) is a financial instrument of such a portfolio. Choosing the right investment options for yourself, you need to be able to properly evaluate them. And this can be done using indicators such as profitability and risk. In accordance with these criteria, absolutely every instrument must be evaluated.
So, depending on the level of profitability and risks, there are the following types of investment portfolios:
1. Aggressive. A distinctive feature of such a portfolio is the availability of instruments with high profitability, but rather high risks. And in order for such investments to be profitable, they need to be constantly monitored, subjecting them to periodic analysis and, depending on the economic situation, immediate adjustments.
2. Conservative. The principle of its formation is the selection of instruments with the lowest risks. Such an investment portfolio will not be very profitable, but reliable.
3. Balanced. This type equally includes both highly profitable instruments, characterized by high risks, and reliable ones, which are guaranteed to lead to an increase in investments (albeit not too large-scale). Moreover, the more diverse investments will be in its composition, the more effective it will be.
So, knowing about the main features of each type of investment portfolios, it is easy to decide on the most suitable option for yourself. Indeed, for some, the reliability of investments is a priority, for others – their high profitability, and for others it is important to achieve the planned level of profit with balanced (acceptable) risks.
What else is important to consider when forming your own investment portfolio?
When choosing instruments for your investment portfolio, it is important to be guided not only by their profitability and risks, but also by the payback period. The correct distribution of your investments, depending on their return, affects the productivity of this process.
So, focusing on a balanced investment of funds, you can choose, for example, both long-term construction, the payback period of which is quite long, and those that are distinguished by instant liquidity: precious metals or foreign currency.
5 common mistakes novice investors make
Novice investors need to constantly educate themselves. But, in addition to independent learning the basics of stock trading and market instruments, you will also need the ability to get around the typical mistakes made by almost all newcomers to trading.
1. Invest in trending assets
There is nothing more dangerous than making investment decisions guided by fashion or rush demand. A boom in the market (for example, cryptocurrencies ) can, of course, last a long time and someone will really make money on it. But, if everyone in that market buys for subsequent resale (and not for a long time) and the supply is constantly and uncontrollably growing, this leads to a bubble. And any bubble must burst sooner or later. Therefore, you should not strive to jump on the runaway train of “happiness” and choose “fashionable” assets. Invest only in accordance with your personal investment goals, acceptable level of risk and experience.
2. ” Save yourself who can” or succumb to fear
Fear is the second feeling that, along with greed, ruins the lives of traders and investors. Every time you read “bad” news about the market (for example, about a company whose shares you have in your portfolio) , you are tempted to sell the shares of this company as soon as possible in order to minimize your losses. However, after a novice investor succumbs to such a temptation, the next day he will see that the market has won back yesterday’s decline. There is also a downside: it is too long to wait for the price to return to its former levels and losses will be won back, in fear of fixing the loss. Both options of behavior under the influence of fear lead to a sudden “drain” of the deposit.
Professional traders often and quite well manipulate the fears of beginners. This is called capitalizing on the “bounce”. The market is an ever-moving and changing environment, where the interests of millions of opponents are intertwined, and the benefit of each depends on the error of the other. Often, news “pours” into the market in order to manipulate the mood of the players. Therefore, in order to protect yourself from such mistakes, you should not first engage in speculative trading (i.e., very short-term transactions, for example, during the day). In such trading, strict self-discipline, constant control of the market position and the speed of decision-making are very important. Beginners usually lack the experience, time, and knowledge for this. Therefore, it is better to start trading on the market with medium-term investments for a period of 1-2 years, based on fundamental analysis, so as not to check your account every day and not to panic unnecessarily. When negative news appears, wait a few days, look at the market reaction, analyze the fundamental impact of these events on the priceasset .
3. Believe in your exclusivity
Each of us is talented in our own way, but the talent for investing (like Warren Buffett) is manifested, perhaps, less often than for singing or drawing. Therefore, you should not think that if the popular books or courses on investing are perfectly clear to you, then tomorrow you will start to successfully and regularly make money in the market. Do not invest all your capital , even if you are confident in the correctness of your choice. Remember that you have little experience and you do not have full access even to all market information, let alone insider information.
To help yourself fight your own EGO, it is better to use the technique of pending orders: stop losses and take profits . The former will allow you to limit the size of possible losses (just do not set them too close to the opening price of a trade, take into account market volatility ), the latter will allow you to plan an exit point from a trade.
Widget not in any sidebars
There is a popular saying among traders – “let the profit flow”. You need to be very careful with him. Often a coincidence, many people take for their own discernment. Coming out of a position is more important than even entering it correctly. Only if you learn how to close positions in accordance with predetermined targets (target levels), and not succumbing to spontaneous impulses or a sense of fear, you can consider yourself an experienced investor.
4. Invest in debt
To accelerate the acquisition of their immense wealth, many novice traders seek to use the maximum leverage (maximum leverage ) that brokers are happy to provide. At the same time, they forget that leverage, which increases their profits under favorable circumstances, also “effectively” works in the opposite direction, accelerating the disappearance of the deposit. You shouldn’t turn trading into a casino game and think that investing in the market is an easy and quick way to make money.
5. Repeat someone else’s success
In the market, win and lose every minute. Who lost – quietly and imperceptibly leaves, for good or to return with a new deposit. The winners (even at least once) are in a hurry to share their success story with others. If you find out that someone has made good money on a certain instrument (for example, having invested in a certain mutual fund last year), you should not rush to follow in his footsteps. Past success does not guarantee future success. In addition, you cannot blindly copy other people’s strategies . Many of its “details” can be overlooked and lead to failure.
When starting to invest, get used to the idea that mistakes and losses are inevitable. But they can be overcome by constantly forming.