How to Invest Money Smartly

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Smart Investor Woman

Investing Tips for New Investors

Learn investing basics such as diversifying investments, investing for the long term, resisting stock speculations and understanding investment market cycles.

As with most money-making ventures, investing works best if investors have developed certain plans or strategies. Not sure how to invest money smartly?

Here are some investing tips that new investors can look into before parting with their hard earned money.

Diversify Investments

Not all investment products and market sectors perform in the same way. Some do exceptionally well while others have dismal performances in the same economic climate. That’s why it’s important for investors to diversify their investments.

Ideally, spread the risk by having secure cash or fixed interest investments for a modest return over the short term as well as investing in shares and property for higher returns over the long term.

Investors can also diversify further by choosing different investments for each asset class. For instance, shareholders can buy shares from different companies across different sectors or even international stocks.

Invest for the Long Term

The best way to invest money is to plan it for the long term. It’s time in the market, not the timing in the market, that really counts.

In other words, don’t invest based on hot tips from the neighbor’s uncle who made a profit recently by following his sister-in-law’s hot tips. Instead, develop a sound investment plan and stick to it. The longer an investor keeps his investments, the more likely he will ride out market highs and lows.

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A good investment strategy is through dollar-cost averaging, a technique of buying a fixed dollar amount of a particular investment on a regular basis regardless of the share price.

This means more shares are bought when prices are down while fewer shares purchased when prices are up, giving the investor a lower overall cost for buying shares over a period of time. If possible, try to set up an automatic investment plan to make the most of dollar-cost averaging.

Resist Stock Speculations

Many inexperienced investors hope to make a quick profit through stock speculations. This often turns out to be a costly mistake.

A better strategy is to invest in quality assets that will appreciate in value over time.

Favor steady and well-established blue chip stocks instead of risky hot speculative stocks that may rake in high returns.

Additionally, try to invest in assets with the tendency to do well even when times are bad.

For instance, in Australia, supermarket and food manufacturers are known to have good track records even during downturns. So shares offered by these companies may make good investment products.

Know that Investment Markets Run in a Cycle

Remember that investment markets run in a cycle.

  • A financial boom that has continued for a few years will always end with a downturn.
  • When things are bad, they can only get better.
  • The economy will slowly recover, peak again only to be followed by another downturn.
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It will be an endless cycle.

The trick is to be prepared for the bad times and then be ready to actively participate in investment plans when another boom period starts.

To invest money smartly, diversify investments across different asset classes and different market sectors. Also, aim to invest over a long term, resist stock speculations and understand that investment markets operate in a cycle.

Found this article useful?

Read also Stock Market Guide for Beginners

References:

Koch, David. Kochie’s 101 Ways to Survive. Melbourne: Wilkinson Publishing

Power, Trish and Drury, Barbara. Investing for Australians All-in-On for Dummies. Queensland: Wiley Publishing

Plate, Shannon. Degunking your Personal Finances. Scottsdale: Paraglyph Press


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