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There has been a lot of talk about how retail investors were taking advantage of new technology to beat massive hedge funds at their own game. This got a lot of people excited about investing and the fact that this can help you to build financial security. However, few people had the benefit of prior knowledge or understanding of how the financial markets worked, leading to many making costly mistakes and errors. That’s why it’s important to understand the basics for all of these topics that are part of our every day, like the iGaming sector, where it can be found from this list that there are hundreds of companies that are using casino bonuses and other similar offers to attract new customers to sign up to them instead of a competitor.
Of course, errors like this are great lessons that teach you what not to do next time, but with a little bit of research and reading before you begin making investment decisions you can avoid them entirely.
Understand What Type of Investor You Want to Be
There are two main types of investors: active and passive. As the name suggests, an active investor is someone who actively makes investment decisions on a regular basis, examining the individual assets in detail, valuing companies, and conducting in-depth analysis before committing any capital.
Conversely, a passive investor is someone who doesn’t make active decisions and effectively outsources this work. They typically invest into funds or ETFs (more on those later) and do so at set regular intervals.
Active investing requires a lot of skill, patience, and time. You don’t need to do it as a full-time job, but you need to be prepared to set aside a lot of time to review opportunities regularly. Passive investing, on the other hand, can be done with a little upfront effort and doesn’t require much after that.
Diversify to Spread Your Risk
Diversification is important in spreading your risk. If you have 100% of your capital invested into a single company and it goes bankrupt, you will lose everything. However, if your investments are diversified, you might lose only 1% (depending on what proportion of your portfolio was weighted in the direction of that single company).
Let’s take a look at the iGaming industry as an example. It has been growing rapidly over the last few years thanks to the expanding market and a general increase in interest from consumers. Therefore, you may decide it is a good sector to get some exposure to.
Therefore, you might decide that it’s prudent to diversify your holdings by acquiring shares of several iGaming companies instead of one.
You may also want to diversify your investments by gaining exposure to other types of assets. One popular option for this is buying houses for rental income as this is seen as a reliable source of cash flow.
Understand the Difference Between Investing and Trading
Many people like to talk about how great they are at “trading”. You should understand that this is very different to investing as it focuses purely on short term factors and often involves complex derivatives that mean you never own any assets like shares but instead place bets on whether their prices will go up and down.
In the US, some of these complex financial instruments can’t be sold to retail investors, while in the UK, the Financial Conduct Authority requires companies that offer these products to display a very obvious warning. These warnings usually say something like “trading in X is highly speculative and carries a high level of risk”, many are also required to state that around 80% of retail traders will lose money.
To put it simply, investing focuses on the long term, while trading is typically focused on the ultra-short term (often single days). Most people will want to invest and not trade.
Minimise Fees
Fees are a hidden drag on your investments. They can mean the difference between growing your wealth into the hundreds of thousands, or millions, over a period of several decades.
You should look for brokers that offer the lowest fees (many now offer free accounts), but you should also be aware that funds and ETFs will also charge their own management fees.
An index tracker will usually charge fractions of a percentage. For example, HSBC’s FTSE All World Index fund has an ongoing charge of just 0.13% of your investment. In comparison, the Stewart Inv Indian Subcontinent Sustainability fund charges 1.11% per year. That may not sound like much, but it will seriously harm your performance over the long term.
Additionally, the two have very similar levels of return, making the former fund better value for money.
Summary
The fact that retail investors now have better access to the market than they’ve ever had is a great thing. However, if you’re making your first tentative steps into the world of stock markets, then these tips will help set you off in the right direction. That said, you should still do further research and seek professional advice if you are unsure about anything.
