Congratulations. If you’re reading this article, it probably means that you have a little spare cash to play with and you’re thinking about getting into investing. Props to you.
But before you rush down the investing track, there’s a few things new investors should know.
And there’s one major question you need to ask yourself: can you afford to lose the money? Like, forever? It’s not a pleasant thought, but it is a possibility when you’re investing. You could buy $1,000 worth of shares in Company X and Company X could go belly-up.
If the answer to that question is yes (even if it’s a reluctant yes), let’s keep chatting.
- There are no guarantees.
- It can be a long game.
- Your life should dictate the terms.
- The earlier you start, the better it may be.
- Investing can be scary.
There are no guarantees.
Not to scare you straight off the bat, but it’s super important that you know: when it comes to investing, there are literally no guarantees.
No matter how much time and energy you put into researching each company, there’s always something that could go wrong. Even the experts get it wrong sometimes. Take, for example, Warren Buffett, who has admitted he “should have” bought Amazon “long ago, because I admired it long ago. But I didn’t understand the power of the model.”
By the way, when we say there are no guarantees, we’re not just talking about the “what ifs” and the missed opportunities. Horror stories abound about investors who lost every cent they invested in a company, companies that have got into liquidation, and so on.
Obviously, there are also plenty of amazing stories to counter the horror stories, but as we said, when it comes to investing, there are no promises made. Past performance is not a reliable indicator of future performance.
It can be a long game.
Warren Buffett is quoted as saying: “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
What he’s telling you is pretty simple. When you start investing, you should think of yourself as being in it for the long-haul. While that doesn’t have to be the case — there is day trading, after all — most people believe investing over a period of many years gives you the best opportunity to maximise your returns.
As you move forward with your plans, consider your long-term investing goals. Make sure you can afford to part with your money for a number of years.
Your life should dictate the terms.
When you decide to start investing, it can be tempting to be seriously gung-ho and throw every last dollar you can find into your investing account.
But what happens if you suddenly find yourself short of spending money?
One of the most important steps you should take before you start investing is to consider how investing fits in with your current financial routine. As mentioned, when you invest, you’re usually playing the long game. In many cases, you might be waving goodbye to your money for at least a few years. So, if you plan on long-term investing, you should only part with cash if you can afford to for years at a time.
Here are some questions to ask yourself to ensure your life is dictating the terms of your investment plans (and not the other way around):
- Can I honestly afford to part with this cash for a few years?
- What are my investing goals?
- Am I ready to start investing — or should I be saving up an emergency fund or paying off debt with my money instead?
If you answer these questions clearly and honestly, you’ll get a good idea of whether starting to invest is the right fit for you at this time in your life.
The earlier you start, the better it may be.
With all that said, if you are in a position to part with your money long-term, there is a general attitude that says: the earlier you can get into investing, the better it may be.
Why? Well, let’s say you want to start investing in your 20s and 30s. You’ve determined that you can part with your money long-term. You also won’t be retiring for at least 30 years, in most cases. So, that essentially means you potentially have 30 years to make a return on your shares.
This means you might be more willing to be more risk-tolerant in the early days. That’s not to say you should throw everything at the wall and see what sticks. But it does mean that you may have more time to ride out short-term fluctuations in returns in your earlier years.
In addition, it means your gains could be compounded.
Let’s say you invest $1,000 into Company X. In the first year, the shares rise 10%, so now your investment is worth $1,100. In the second year, the shares appreciate another 10%. Therefore, your initial $1,000 has grown to $1,210. Basically, in the second year, the 10% growth is on the total balance from the first year, rather than your initial investment.
While starting earlier is generally considered better, it’s not the only way. If you want to begin investing — and you’re comfortable doing so — there’s no better time than the present.
Investing can be scary.
The final thing to know before you consider whether or not you’re going to start investing is this: investing can be scary. The market can be volatile at times. Your stocks will likely ride so many waves you’ll feel as though you’re on a rollercoaster.
So, it’s probably not for the faint of heart. But remember that people have been investing in the stock market for years. While you can’t account for everything, you can be smart with your approach and do your research and make mindful decisions — and hopefully, it’ll all work out.
The Spaceship Universe Portfolio and the Spaceship Index Portfolio currently invests in Amazon.
Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.