Investing can be very easy and does not have to involve getting insider information, luck, or even a brain of a computer, like a friend of mine will say. It is just buying the right thing at the right price and waiting for it to yield returns in many ways. If you have carefully studied the life of successful investors like Warren Buffett and Benjamin Graham, you will see that this people have a particular method of investing and in this post, I will be sharing a few things to know before investing either as a passive investor or as an active investor. In this post, I will be sharing how to invest as a passive investor;
Beware of the Stock broker’s call
The day you buy your first share either good or bad, you start receiving calls, mails and messages from stock brokers advising you on the investment to buy and that to sell. In most cases this people aren’t right as they do what is call trading and their commission is done on a daily basis and not on a salary basis. The stock broker is calculating how much he will be making that day and not how much he will be making at the long run so this is a place one need to be very careful. If an offer looks untrusted or not comfortable with you, you can simply ignore the call let go of it but if you feel safe with the investment offer, looking at the opportunities in the long run and not concerned about the market movement on a daily basis then you can invest in it. On this note, how do I know a good investment?
Invest Passively
Anyone can be an investor, all that is required is to spare a few part of your income into investing and the common category of investing is passive investing where people invest in stocks and bonds. It is advisable to invest in 50% stocks and 50% bonds. How do you invest in stocks and bonds without making wrong investing decisions?
The very first thing is diversify your portfolio without majoring in a single industry and you can do this by investing in an Index fund.
Invest in large companies and not companies selling penny stocks or companies that the names do not count in their industry, it is advisable to invest in companies that make an annual return of about $700 million to $1 billion on a minimum.
It is advisable to invest in companies that have reserve cash and with that, you do not have to wait for the stocks to increase in price, you could just get dividends from your investment. Also, invest in companies that have been paying dividend for about 5 years or more.
Invest in companies with no earning deficits but rather have experienced growth in the last few years.
Investing does not mean overpaying. Do not invest when the price of the stock is high, wait for it to drop before putting your money else you end up in a bubble. The price of the stock should be a little above the company’s net asset value.
Conclusion
Investing is different from trading, traders make the market go up and down on a daily basis, and investors allow the company have cash to do business with. Traders enjoy trading on a daily basis and count their profit and loss at the after the closing bell but investor do not care about the bells. Investing passively is a very good way to preserve a financially free life but when the investment are wrong, it can be very detrimental. Also, invest what you can forego if you are just starting out as a beginner.
In my next post, I will be writing about being an active investor. Stay tuned!!!