Fledgling investors typically have lots of questions, and sometimes a little anxiety. They may have heard investing provides better returns but when it comes to taking the first steps, people often feel overwhelmed, and unsure where to start. Given that investing isn’t taught in schools, all the investing jargon, and the wide range of investing strategies, it’s no wonder some people develop a sort of “investiphobia”.
One of the issues, perhaps, is the limited range of digestible content out there. If you’re totally new to the world of investing then HSBC’s Beginner’s guide to investing is a great resource to get you started. There are of course lots of books, websites, and videos on Youtube at your disposal to continue with your investing education. Just make sure the source is legitimate and trustworthy, and do use a range of different resources to provide balance. You will soon understand that there are various approaches you can take to investing. Research and reflection on your current circumstances and level of knowledge is how you decide which approach is right for you.
Once you have decided you’re ready to invest, and on the strategy you wish to take, the final important decision will likely be which provider to go with. In the UK, there are a range of brands from which to choose, depending on what you want to invest in (e.g. equities) and how you want to approach investing (e.g. individual stocks or funds). It’s vital to check your provider is legitimate and is FCSA approved. It can be wise to opt for a reputable brand and you may consider managing your money with HSBC.
The importance of a long-term outlook
New investors need to be aware that the value of their investment can fall, as well as rise. Seeing the value of your investment fall for the first time can be scary and it’s important not to panic in these moments. Risk, whilst possible to mitigate, is impossible to avoid entirely when investing in the markets. What’s really crucial is understanding that investing requires a long-term outlook (5 years+). Investing is fundamentally different from trading: where traders look to buy low, sell high within a short period of time.
New investor pitfalls to avoid
Many new investors like the idea of investing in companies that they, as consumers, have purchased from and are fans of said companies’ products or services. There’s nothing inherently wrong with this approach. In fact, it can be good to invest in companies that you, at least from a consumer perspective, are familiar with and appreciate. However, you have to ask yourself whether you understand the company’s financial position, the market in which it operates, and growth outlook versus its current stock price. Few people possess this knowledge, nor have the time to allocate to conducting such research. Furthermore, investing in just one or two stocks can be riskier than a well-diversified portfolio of stocks.
This is why it can be beneficial to invest in a wide range of companies instead. Perhaps the easiest way to do this is to invest in an index fund. This approach allows you to purchase a portion of hundreds of companies and therefore its value reflects the performance of an overall market (e.g. the S&P 500) or cohort (e.g. the world’s largest technology companies).
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Disclaimer: this article constitutes an ad for HSBC investment products.