There is something about the world of investments that makes it look untouchable and incredibly dangerous. It might be the emotional fear of failure or the very rational fear of losing money. But equally, investing holds a lot of potential and opportunity and is one of only a handful of things you can do to increase your income, something which is a key objective for many investors.
The only real way to minimise the risk, and therefore the fear, is to thoroughly understand the cause and effect of the investing decisions we make.
So whether you’re looking to make your first investment, or have already built up a portfolio, we’ve listed below our 7 top tips to help you face your fears, and start investing today!
Understand the Fundamentals
It is easy to get caught up by a ‘hot tip’ or trending stock without actually understanding any of the foundations behind it.
A quick, easy and free way of learning the basics is to take an interest in the markets, watching and learning how the dynamics of investing plays out in real life. By observing passively to understand the fundamentals of the investment landscape, you will reduce the risk that goes with it when you do decide to jump in!
Don’t be afraid to ask questions. Your friends, family or even some AI tools can help enhance your understanding of more specific scenarios. The more you learn about investing, the better you will be at recognising a good deal.
Weigh up the Risk
Take some time to work out how much money you can allocate to investing without it affecting your lifestyle. Never invest what you can’t afford to lose.
If you decide to invest via Equity Crowdfunding, the maximum amount of money you can invest as a retail investor, by law, is AU$10,000 per year. So even though the risk can be higher than other forms of investment in the early-stage companies common in Equity Crowdfunding raises, the risk is much more manageable.
Balancing the risks with the rewards is key to a successful long-term investment strategy.
Diversify your portfolio
Once you become confident enough, stop focusing on what makes you most comfortable and start diversifying your portfolio to find the balance between risks and returns.
Diversifying your investments across different channels and industries can help protect your portfolio from volatility if one sector experiences a downturn.
Focus on your future goals, not past performance
Change or adjust your financial plans based on your needs and goals. Some investors will make the mistake of chasing past performance that has already surpassed its peak without ever giving new opportunities a look in.
Not always a quick return
Investing, particularly Equity Crowdfunding is a long-term investment. While there may be some short-term investment opportunities, a lot of investments will be for the longer term.
Losing sight of this and only focusing on short-term fluctuations can lead to mismanaged expectations and sometimes missed opportunities.
Fees and expenses
Be vigilant about understanding the fees associated with different investment vehicles, such as mutual funds or exchange-traded funds (ETFs), and opt for low-cost options whenever possible. CSF generally does not have a fee associated with it for the investor.
Due diligence
Doing your due diligence on any investment opportunity makes sure there are no unpleasant surprises. Some key due diligence checks that you should be doing include:
- A review of financial statements
- Getting an understanding of the management
- Assessing competitive positioning
- Investigating any legal disputes