Freetrade has been shaking up the investing landscape here in the UK (amongst other brokers) and the team behind the platform have passed on some of their top investing tips.
One of the few positives to emerge from the coronavirus pandemic is that some people have actually managed to save a lot of money during the lockdowns. Let’s take a look at Freetrade’s tips and see how you can potentially grow your lockdown savings.
1. Invest in what you know
Since we are the people on the frontline, we sometimes have a bit of an advantage when it comes to investing. Hedge funds and professional investors put lots of resources and money into researching how companies are performing. We can actually have a slight edge.
You might work in a particular industry and have seen things picking up with your own eyes. Or perhaps there is something you’re interested in as a hobby and you’ve noticed it becoming more popular.
A lot of the time, professional investors just have statistics and balance sheets to work from. You have the benefit of being able to see trends in real time. It’s a good investing tip to stick to areas that you’re comfortable with as it’ll usually be better than picking a company or industry you know nothing about.
2. Keep it simple, keep it short, keep it going
The second investing tip is to do with the financials of companies you may want to invest in. Some people spend an incredible amount of time and energy scrutinising every figure on a balance sheet. Others don’t even look at all because they find it too intimidating.
Often, the best route lies somewhere in the middle. You should always check a company’s finances before deciding to invest, but there are simple types of stock analysis that you can do without going in too deep.
3. Investing is a doing word
It may seem like an obvious investing tip but lots of people sit on the sidelines waiting for the perfect time to invest. Sadly, this inaction usually means missing out.
Investing cautiously can actually be a great way to get a better understanding of how the market works. Provided that you have an investing strategy built for the long term, your patience could well be rewarded.
Trying to time the market has been an unsuccessful pursuit for professionals and novices alike. If you want to become an investor, you do need to actually start investing. Sometimes, if you hesitate too much, you can get trapped in amber, revolving in a state of investing paralysis.
4. Invest with your head, not your heart
This investing tip is definitely easier said than done. When the stock market drops, it can feel quite emotional. It’s important to try and make sure that you invest based on logic and not emotion.
If you think you’re likely to get too wrapped up in the figures and movements, try and plan for this in advance. Set yourself guidelines as part of your strategy.
Unless you plan on actively trading, it could also be a good idea to only check your portfolio occasionally. Otherwise, you’ll just increase the chances you’ll make decisions that don’t fit in with your long-term goals.
5. Be a connoisseur, not a sniper
Sometimes, good investments are like fine wine. They mature and get better with age. This final investing tip is to do with taking profits and cutting losses.
Making a small gain is great, but if it’s a long-term investment, cashing out for a small profit isn’t going to help you build substantial wealth.
There are also times when we may need to give our underperforming investments a chance to breathe and recover. However, if something fundamental changes in the business, it can also be useful to know when to cut your losses.
As investors, we have to accept that we’re not always going to pick winners, but it’s important to try and avoid knee-jerk reactions.
