5 Rules You Need To Learn Before You Start Investing
February 12, 2024
There’s nothing you can do without learning the rules first. If you were to play soccer, even if you’ve never kicked a ball in your life, you need to know that you cannot touch the ball with your hands (unless you’re a goalie) and that you score by driving the ball between the posts.
There are always some basic rules in life that you have to master before you’re allowed to do something.
Still, these rules are not always so rudimentary. Just think about it: if you choose to invest, all that you have to do is find an exchange, deposit some cash, and click the buy button. While that’s technically enough to execute a trade, it’s not enough to fulfill the goal of why you’re investing in the first place.
So, for those willing to start in an investment world, here are the top five rules you should learn before you make your first investment.
Basic Principles Of Investing
There’s no safe investing without financial literacy. Still, where does this start?
First, you need to learn about how the investment works. You should learn about each asset type before you can choose what to invest in.
Aside from that, you need to know what you’re paying for and what you’re getting in return. Trading fees and commissions vary from one platform to another and from one platform to the next.
It’s also important that you figure out the difference between day trading and position investing. Each has its own set of advantages and disadvantages. The last thing you want is to freeze your cash in an asset that won’t return the money in months. Then again, this might be exactly what you want. You just need to make that choice consciously.
The technical aspect of each platform is different, and they each have a different UI. It might be a good idea to look up a tutorial or two before downloading it, just so that you can see what to expect. While customer support and FAQ pages are helpful, most of the time, you’ll look for the answers in the community. Join one as soon as possible and start building a network.
Finally, you might want to take some time to learn a trading strategy or two.
Understanding The Exchange Platform
The simplest way to pick an exchange platform is to look up the list of exchanges specializing in the asset type you plan to buy. For instance, you can look up the list of top crypto exchanges and just pick something at random. You wouldn’t even make that much of a mistake.
You see, if the source is credible, you can rest assured that the person making the list did their research. Usually, you can also see some of the biggest pros and cons right away, which will give you a general sense of direction. Reading this list meticulously (and even following the link to the specific exchange in question and its review) is already more research than most do.
Researching an exchange is not mandatory; however, doing so will help you develop a reference point and figure out your priorities. Everyone reviews a platform from their perspective. In other words, if you primarily trade via your smartphone, the integrity of an app could be crucial to the way you see/use the platform. If you’re primarily a desktop user, suddenly, this is not as big of a factor as it previously seemed.
Generally speaking, you’re looking for several things:
User reviews and ratings
Available assets
Trading fees and commissions
User interface
The last part is especially important since you’ll spend hours upon hours staring into the UI. Liking what you see and finding it intuitive is, therefore, more important than you think.
Learning How To Research The Asse
On the surface, this is as simple as it gets – all you need to do is look up the price, and if you like it, you can buy or sell. Still, even then, you need a reference point.
For instance, if we told you that Ethereum is currently around $2.5k per coin, would you rate this as high or low? What was it a few months ago, and what cost do you expect it to reach in a few months? To understand the price, you need a reference point.
Now, while charts are meant to be a simple graphical representation, not everyone can read or interpret them. There are so many chart patterns out there that you need to learn how to read, especially since they are known to repeat themselves over time.
You also need to familiarize yourself with the asset class you’re researching. For instance, if you want to become a crypto investor, you need to learn a bit more about the asset and the forces that affect its market. You need reliable learning materials and sources of information. A strong community is also invaluable in this endeavor.
This way, you can streamline the process. For example, when using a reputable exchange like Binance, you check out the upcoming listings on the exchange, conduct individual research on each interesting coin, and decide to buy based on your research (and even your intuition).
Let’s make one thing clear – you don’t need to understand how cryptos work to buy them or even get rich off them. However, this will increase your odds of making the right choice.
Learning How And Why To Diversify Your Portfolio
If you knew which asset would yield a positive return, you would never have to invest in anything else. At the same time, if you could fly, you could just sell your car, and if you could breathe underwater, you would never have to spend a cent on renting diving equipment.
“Knowing” which asset will go up is impossible, and whoever makes a promise like this probably has a different intention.
Since you can only guess, putting all your money in a single asset is not something any serious investor would do. This behavior is more befitting of a gambler.
Don’t keep all your eggs in one basket.
In investment terms, diversify your portfolio.
You should start by finding several different assets to invest in. Pick one to be your main investment asset (the one you research the most) and apply risk management to spread your resources. Then, take a part of your investments and put them into an asset with low correlation.
For instance, putting some money into commodities like gold and silver (like 10-15% of your total investment value) while primarily investing in stocks is a sensible approach to this scenario.
Keeping a diversified portfolio is the key to staying safe and developing positive investment habits that will boost your personal finances.
With These Four Skills On Your Side, You’Ll Finally Be Ready To Invest
Investing before mastering these four rules would be like driving without passing a test and getting a driver’s license. Can you still drive? Technically, yes! Can you still go unpunished for this transgression? In theory! Still, this is not something that anyone who wants you any good would ever advise you. Take care and if you want to invest, put some effort into learning the ropes.
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