I have only recently come into enough money to begin investing, how can I avoid the pitfalls that a new investor might fall into and what kind of strategies do you recommend for a new investor?
Knowing what strategies to use and avoiding pitfalls for a new investor does not need to be difficult. The most important thing to remember is to research thoroughly each and every investment before committing your funds.
By doing your homework on the investments you choose, many of the pitfalls made by a new investor can be avoided. Before doing your homework however, you must first be clear in your mind on your goals and what you are investing for.
Most people invest their money for capital appreciation, although other people may have additional reasons to invest such as their tax situation. Long-term financial security is another principal reason for investing.
Once you have determined your investment goals and the time frame you plan to achieve these goals in, you are now ready to evaluate the amount of risk you plan to assume for your investments. Risk and reward go together, the more risk involved in an investment, the more the potential reward.
The risk element will have you either buying interest bearing U.S. T-bonds, which will give you a minimal return on your money, but is a safe investment, or, purchasing penny stocks with the possibility of losing your entire investment. Somewhere in the middle is how you should plan to invest.
Finally, investment strategy can be developed using either a fundamental perspective —analyzing using events affecting the market — or a technical perspective, evaluating levels of supply and demand using historical price data. Most professional investors use a combination of the two methods, using technical analysis and combining their fundamental research to make a decision on the strategy they will use to invest.