Self-directed Investing has become more and more easier as the time passes. People can now start investing even through mobile applications. While historically, investing used to be highly dependent on brokers, e-trading has provided a platform for investors to completely bypass these brokers. And why shouldn’t we as it is our money that is being invested? However, Self-directed investing requirements not as easy as it looks. Which is exactly why brokers make good money. To become a self-directed investor, you will need to put in extra effort. So consider following these six steps that will serve as guide in your journey!
1. Building your Research Panel
The first step to start Self-Directed Investing is to build your own research panels. This should include all the past trends of securities that you plan to invest in. So for instance if your plan is to invest only in the shares of different companies, start looking at their annual financial reports to see how they are doing. If after a while you want to invest in gold too, see what trends it has been showing in the previous years? How has it increased or decreased or when was it more in demand? Keeping a knowledge is essential as it enables you to accurately predict how the securities will perform in the future. Based on that information, you as a self-directed investor, can decide whether to drive in or pull out money from certain securities.
However, these research panels are not only for identifying growth trends but also for comparison to each other. Why and how is that important is the discussion of the next step.
2. Diversifying Portfolio
Just as the old saying goes, “Never put all your eggs in one basket”, investing only in one type of security is the biggest, and sadly, the most common mistake by newbies. Always consider investing in more than one type of securities as it maximizes your return with reasonable risk. Don’t understand how? This is where research panels become relevant again.
When managing your research panels, you should also compare to see which of the assets are least correlated. This is because if you divide your money in these two securities, you will be reducing your risk as they move in opposite directions. Hence, even if things become terrible for one type of security, the other type of security will remain stable or even flourish.
3. Invest more in Long Term 200
This step in my opinion is the most important of all. Most new investors are very hyped when entering the market. Although, excitement is a good thing, it creates the need for this investors to see profits as soon as they enter. However, the golden rule of investing is to invest in long term, not in short term. And that includes both investing in securities and even your plan.
Most new investors find it hard to keep following their investment plan. However, securities already have a lot of variability. The last thing you’d want is for your investment plan to become variable too. Although, there is no harm in updating your investment plan, too much variation will only be more frustrating. Try trusting in yourself to make a long term plan and stick by it. Only then will you really learn from your mistakes to rectify your investment plan accordingly.
The next important advice is to invest in long term assets. This is because long term securities are a lot less risky than short term securities. As a newbie, you would want to invest more in securities where your money is safe, while experimenting with lesser money in short term markets. In this way, you will be able to learn how to invest both in long term and short term market while also safeguarding your money from being lost.
4. Make and Keep Updating Your Portfolio
After creating research panels, diversifying and investing in long term and short term securities the next step is to create an investment portfolio. This portfolio will show you how your money is divided between different securities, time periods along with their performances.
Try keeping an update of your standing after a preset time. Be honest in your updates no matter what as this would be your personal tracker for success.
Even after doing all of these above steps, there is still a good chance for you to incur losses. However, that is not necessarily something bad. The next step will show you the actual meaning of loss and profit in investments.
5. Understand the meaning of Loss
As also discussed earlier, securities can be very volatile and hard to predict. Even after all our analysis, there is a good chance that our predictions about certain securities can go wrong. However, these losses are short spanned in nature. If allowed the time, prove to be remarkable investments in the future.
Here, the key is to differentiate between short term losses and overall losses. If the losses are short term, then strategies such as diversifying will help you stay afloat. However, if the overall result of your investment proves to be a loss. Only then you need to worry and update your portfolio. What new investors often do not understand. That in this market, the most successful are those people who wait with patience. Long term returns are the only reasonable returns that you can expect unless you are a professional broker.
6. Stay Confident
The last step is to stay confident in your actions and in your plan even if it fails. Remember, you are learning to invest so don’t be too hard on yourself. The more confidence you will have on your investment plan the better it will go for you.
Even though investing without an intermediary is tough in the beginning, the reward is worth the pain! In this case the reward is additional learning skills while making the most out of your investments without paying commissions. Always believe in yourself and every decision you make while constantly working on improving your investment plan. However, remember to stick by it once you’ve made the decision. This is how you too can start self-directed investing powerfully.