What is it about the companies that you buy goods and services from on a day-to-day basis, that makes you believe they will still exist in the next few years to come?
It may not seem like it at first, but this question relates very closely to the mindset of investing and choosing which companies to consider for your portfolio. When investing, it’s important to understand that growth and long-term sustainability are characteristics you’ll want to look for in every investment you make.
No one wants to be a loyal client of a store that might close down - the same way no long-term investor would invest in a company that they believe may not stand the test of time. With this in mind, we’ve outlined some of the basic principles to consider when starting your investment journey.
Know your risk appetite
Remember that when investing in the stock market, you will most likely see the value of your investment regularly fluctuate. These fluctuations are normal and differ depending on the share price and the type of investment you are looking at.
There are ways you can manage or lower your risk as well. One of them is to have a diversified portfolio.
Create a diversified portfolio
Diversification involves spreading your investments across different asset classes, industries, or geographical regions. This strategy helps mitigate risk by reducing the impact of any single investment's performance on your overall portfolio.
Read more about how to diversify your investments here.
Consider your options
Familiarize yourself with different investment options, such as stocks, managed portfolios, exchange-traded funds (ETFs), real estate, and more. Each option has its own characteristics, risk profiles, and potential returns.
Like a consumer who'd describe why they believe a company/brand will still exist in the next coming years, an investor could take the same approach and consider a company's growth potential when deciding whether it’s a good fit for their portfolio.
Remember, the smaller something is, the bigger the chance it has for more significant growth. It also has a higher chance of facing a downfall. In contrast, the bigger something is the less likely it is to experience exponential growth or failure.
And just like a consumer rushing for those red-hanger sales, with investing, share prices also drop, and sometimes this may be at a significant value.
The drop in value of a share price may at times present an opportunity to “buy the dip” to maximize your returns in the short to long term by reducing your purchase price.
Do your research
Before investing, do some research on the investments you're considering. Analyze financial statements, company performance, market trends, and relevant news. This information will help you make informed decisions.
You can find loads of research on stocks and the market in our Research Portal.
And lastly, get started.
The power of compounding makes it advantageous to start investing as early as possible. Consistently investing a portion of your income over time can lead to significant growth in your portfolio.
Investing is probably not as difficult or expensive as you think. With the ability to invest in a piece of a share (fractional share investing), you are able to buy shares that carry any price tag and still enjoy the benefits of being a shareholder.