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Investor Education


It can be impossible to perfectly predict if any investment will rise or fall over time. But arming yourself with a solid baseline of knowledge, includes the definitions of key investment terms, can greatly help your ability to determine what investments are right for you. In this section, we cover the basics of the investing world, provide an introduction to the markets, information about how to determine what your risk tolerance is and steps to take to ensure you’re not victimized by investment schemes.

Investor education never really ends because markets are constantly changing, and everyone’s financial plans can use a thorough spring cleaning and review to see what’s working and what isn’t.

Once investors have committed to increasing their knowledge of what to do with their money, there are a multitude of options to expand their education. 

With rapidly advancing technology available to consumers, almost everyone has an opportunity to take control over their own investments and make significant financial decisions.

Beginners taking their first steps towards learning the basics of investing should have access to multiple sources of quality education. Just like riding a bike, trial and error, coupled with the ability to keep pressing forth, will eventually lead to success.


Get Your Finances in Order

Jumping into investing without first examining your finances is like jumping into the deep end of the pool without knowing how to swim. On top of the cost of living, payments to outstanding credit card balances and loans can eat into the amount of money left to invest. Luckily, investing doesn’t require a significant sum to start.


Learn the Basics

You don’t need to be a financial expert to invest, but you do need to learn some basic terminology so that you are better equipped to make informed decisions. Investing can be harmful and cause the loss of money or savings if done unwisely. Learn the differences between stocks, bonds, mutual funds, ETFs, and certificates of deposit (CDs). You should also learn financial theories such as portfolio optimization, diversification and market efficiency.


Set Goals

Once you have established your investing budget and have learned the basics, it’s time to set your investing goal. Even though all investors are trying to make money, each one comes from a diverse background and has different needs. Forming a goal helps determine the best investment vehicle to fit that particular goal. For example, when saving for retirement, a tax-deferred savings account — such as a traditional IRA — should be probably be used. Safety of capital, income and capital appreciation are some factors to consider; what is best for you will depend on your age, position in life and personal circumstances.


Determine Your Risk Tolerance

Would a small drop in your overall investment value make you weak in the knees? Before deciding on which investments are right for you, you need to know how much risk you are willing to assume. Do you love fast cars and the thrill of a risk, or do you prefer reading in your hammock while enjoying the safety of your backyard? Investments that carry more risk offer a higher potential for return. Conversely, lower risk investments generally offer a lower rate of return. In the perfect scenario, an investment portfolio that has high return with little risk is the target goal for any investor. Your risk tolerance will vary according to your age, income requirements and financial goals.


Find Your Investing Style 

Now that you know your risk tolerance and goals, what is your investing style? Many first-time investors will find that their goals and risk tolerance will often not match up. For example, if you love fast cars but are looking for safety of capital, you’re better off taking a more conservative approach to investing. Conservative investors will generally invest 70-75% of their money in low-risk, fixed-income securities such as Treasury bills, with 15-20% dedicated to blue chip equities. On the other hand, very aggressive investors will generally invest 80-100% of their money in equities.


Learn the Costs

It is equally important to learn the costs of investing, as certain costs can cut into your investment returns. As a whole, passive investing strategies tend to have lower fees than active investing strategies such as trading stocks. Stock brokers typically charge commissions. For investors starting out with a smaller investment, a discount broker is probably a better choice because they charge a reduced commission. On the other hand, if you are purchasing mutual funds, keep in mind that funds charge various management fees — which is the cost of operating the fund — and some funds charge load fees.


Find a Broker or Advisor

The type of advisor that is right for you depends on the amount of time you are willing to spend on your investments and your risk tolerance. Choosing a financial advisor is a big decision. Factors to consider include their reputation and performance, how much they charge, how much they plan on communicating with you and what additional services they can offer. Those who feel uncomfortable with do-it-yourself investment accounts can still go to a full-service brokerage firm. These firms may provide more service or expertise, but they do come at a higher cost and may have a minimum asset level requirement to open an account.


Choose Investments

Now comes the fun part: choosing the investments that will become a part of your investment portfolio. If you have a conservative investment style, your portfolio should consist mainly of low-risk, income-producing securities such as treasury bonds and money market funds. For those who do not want to pick individual stocks or bonds, you may look to mutual funds or exchange traded funds (ETFs). The key concepts to emphasize here are asset allocation and diversification. In asset allocation, you are balancing risk and reward by dividing your money between the three asset classes: equities, fixed-income and cash. By diversifying among different asset classes, you avoid the issues associated with putting all of your eggs in one basket.


Keep Emotions at Bay

Don’t let fear or greed limit your returns or inflate your losses. Expect short-term fluctuations in your overall portfolio value. As a long-term investor, these short-term movements should not cause panic. Greed can lead an investor to hold on to a position too long in the hope of an even higher price – even if it falls. Fear can cause an investor to sell an investment too early, or prevent an investor from selling a loser. Successful investors remain disciplined and are not influenced by day-to-day fluctuations or outside factors. The ultimate goal of any investment is to buy low and sell high. However, most unsuccessful investors trade with emotion, unknowingly buying high and selling low. If your portfolio is keeping you awake at night, it might be best to reconsider your risk tolerance and adopt a more conservative approach.


Review and Adjust

The final step in your investing journey is reviewing your portfolio. Once you’ve established an asset-allocation strategy, you may find that your asset weightings have changed over the course of the year. Why? The market value of the various securities within your portfolio has changed. This can be modified easily through rebalancing. Individual investments within a portfolio can grow at different paces. If the stock portion does very well, it might be a good idea to reallocate the growth back into bonds. Otherwise, it may increase the overall risk of the portfolio. Continually reviewing and rebalancing your portfolio is a key to successful investing.


10 Great Ways to Learn About Investing:


1.  Open a Stock Broker Account

Find a good online stock broker and open an account. Become familiarized with the layout and to take advantage of the free trading tools and research offered to clients only. Some brokers offer virtual trading which is beneficial because you can practice trading stocks with fake money


2.  Read Books

Books provide a wealth of information and are inexpensive compared to the costs of classes, seminars, and educational DVDs sold across the web.


3.  Read Articles

Articles are a fantastic resource for education. The most popular website for investment education is investopedia.com.   Naturally, searching with Google search is another great way to find educational material to read.


4.  Find a Mentor or a Friend to Learn With

A mentor could be a family member, a friend, a coworker, a past or current professor, or any individual that has a fundamental understanding of the stock market. A good mentor is willing to answer questions, provide help, recommend useful resources, and keep spirits up when the market gets tough. All successful investors of the past and present have had mentors during their early days.


5.  Study Successful Investors

Learning about great investors from the past provides perspective, inspiration, and appreciation for the game which is the stock market.


6.  Read and Casually Follow the Stock Market

News sites such as CNBC and MarketWatch serve as a great resource for beginners. For in depth coverage, look no further than the Wall Street Journal and Bloomberg. By casually checking in on the stock market each day and reading headline stories, you will expose yourself to economic trends, third-party analysis, and general investing lingo. Pulling stock quotes on Yahoo Finance to view a stock chart, view news headlines, and check fundamental data can also serve as another quality source of exposure.


7.  Consider Paid Subscriptions

Paying for research and trade ideas can be educational. Some investors may find watching or observing market professionals to be more beneficial than trying to apply newly learned lessons themselves. There are a variety of paid subscription sites available across the web; the key is to find the right one for you.


8.  Go to Seminars, Take Online Courses or Live Classes

Seminars can provide valuable insight into the overall market and specific investment types. Most seminars will focus on one specific aspect of the market and how the speaker has found success utilizing their own strategies over the years.  Not all seminars have to be paid for either. Some seminars are provided free, which can be a beneficial experience.


9.  Buy Your first Shares of Stock or Practice Trading Through a Simulator

With your online broker account setup, the next step is to simply take the plunge and place your first stock trade Don’t be afraid to start small, even 1, 10, or 20 shares will serve its purpose.

If the thought of trading stocks with your hard earned money is to nerve racking, consider using a stock simulator for virtual trading.


10.  Follow Warren Buffett’s Advice, Buy and Hold the Market

For the majority, online trading (especially day trading) will not outperform simply buying the entire market, such as the S&P 500, and holding it for many years. Warren Buffett, the greatest investor of all-time, recommends individual investors simply passively invest (buy and hold) instead of trying to beat the market trading stocks on their own.

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