How to become a smart investor

How to become a smart investor
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Getting to grips with investing can be difficult if you don’t know where to begin. Learning to become a smart and intelligent investor doesn’t have to be a tough and gruelling process.

To prepare you for the wide world of investments, here’s how you can make better decisions with your money, even if you only have small amounts to spare.

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What is a smart investor?

There are no strict rules for what makes an intelligent investor. But there are some general guidelines you can follow to set you up with the best chance of being successful.

When it comes down to it, the basics of investing can be quite simple. Sometimes, things are made more complicated than they need to be, or the useful information gets drowned out by what’s trendy.

Becoming a smarter investor doesn’t mean you’ll always choose brilliant investments. It often just means minimising your downside. It means giving yourself the greatest chance of picking more winners than losers over your investing lifetime.

How can I become a smart investor?

There’s no secret handshake or dusty manuscript to memorise. By staying disciplined and following certain principles, you can make more intelligent choices without too much work.

Here are ten smart investing principles that can help set you on the right path:

  1. Only invest money once you’ve covered all of your immediate financial needs like paying off debt or building an emergency fund.
  2. Avoid hastily changing course once you’ve spent the time creating a plan and an investing strategy.
  3. Be patient and embrace the benefits of becoming a long-term investor.
  4. Healthy portfolio diversification can be a useful tool.
  5. Minimise your investing costs or fees where possible and make use of tax-efficient accounts like stocks and shares ISAs.
  6. Consistency and time are important. Make investing a regular habit.
  7. Don’t follow trends or tips that come from untested sources.
  8. Make sure you’re investing and not gambling.
  9. Past performance doesn’t dictate future results, but it can give you an idea about what to expect from a company or fund.
  10. Avoid getting too wrapped up in daily market movements.

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What would be a smart investment?

No one can predict how investments will eventually play out. Only in hindsight can people say with certainty what might have been a smart move. However, it can be easier sometimes to just make sure you don’t make a dumb investment.

In the long run, it can be better to make consistent gains rather than sporadic returns. So before making an investment, ask yourself whether you think that company or fund will still be around in 10 or 20 years.

Your tolerance for risk and how much time you have will dictate some of your moves. But stacking small wins can be a solid long-term approach. Usually, if an investment carries the potential for high returns, it’s likely it could also lead to higher losses. Just being aware of that can help you manage your expectations.

How can I be a smart investor with little money?

Everyone dreams that they’ll invest in the next Google or Amazon and that their tiny investment will be enough to set them up for retirement.

Sadly, the chances of this happening are pretty slim. A better strategy can be to try and use a share dealing account to invest in things like index funds or investment trusts and gradually build a diversified portfolio over time.

Even small growth and interest can compound over time. This is how clever investors can grow little investments. By staying diversified, you also give yourself a greater chance of owning the next big companies along with today’s superstars.

Takeaway

All investing carries risk but learning to become a sensible investor can help minimise your downside.

You don’t need to be an investing expert to make decisions like an intelligent investor. Get a good grasp of some basics and stick to your guns. Remaining patient and focused on your long-term goals can carry you a long way.

It’s always exciting to learn and there are plenty of resources out there. Just remember you don’t need to be the smartest investor in the world in order to succeed!

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