As a beginner, your entry into the investment markets, especially bond and stock markets, should be simple and cost-efficient, hence the need to consider ETFs.
Unlike other investment options, EFTs are always more accessible and popular, especially for anyone looking for a more suitable trading option. Due to these benefits, they are ranked as one of the most preferred global investments and likely to be embraced by about 91% of millennials, who consider them the best investment vehicle.
Despite their simplicity and suitability, remember they are like other investment options; hence, they come with certain risks. Therefore, your success as a trader or investor largely depends on your wit and how you navigate the risks associated. Many people tend to make mistakes early on, thus discouraging further involvement.
Learning the rules earlier is better for your future trades and the safety of your investments. While many principles exist for newbies, you should focus on the simple and mandatory tips discussed below.
1. Deciding on the Best ETFs for Beginners
As a beginner, deciding which ETF to consider can be challenging. You need the help of experts, but that would require some management fees and commissions. If you choose to go at it alone, you should make your work easier by considering a few ETF options ideal for beginners.
Luckily, there are so many ETF options you can always consider as long as you visit reputable trading sites and sources. Some sites are known for trading only in safe ETFs that are good for beginners, saving you the stress of research and protecting you from risky bets.
You can begin immediate trades without worries about future performance or losses. This is because they are always guaranteed to perform and have limited risks.
Instead of being comfortable with the limited choices, you can always do your research to consider other better options. You should evaluate metrics like stability and volatility indexes to help you buy the safe and high-returning ones.
Remember to begin with safer options before graduating from the complex one with only limited information available to make the best investment decisions.
2. Pay Attention to The Risks
As a beginner, your concern should be the risk that your trade could devalue your investment or lead to a total loss. Due to limited experience, it is easier to make such mistakes, which can discourage future trades. As long as you consider the risks and do enough research on potential risks, your portfolio will likely be safe.
First, ensure the asset you buy is easy to sell so that you can liquidate it whenever you notice sudden changes in the market. Consider high-volume ETFs since the demand is always higher, thus the ease of conversion into cash. While doing so, pay attention to market and non-market risks that could easily jeopardize everything.
You should always have access to 24-hour market and non-market news. This is critical to predicting the impact on the market and informing you of the best time to sell.
Consider different portfolios for safety and to reduce the impacts of losses. Whether small or large, investments try to have two or more different ETFs and avoid buying from the same field, i.e., healthcare. It is always safe to venture into various areas to ensure you can offset a loss in one with the other.
Pay attention to the indexes and do more research to understand their implications. Every index has information and pointers that could help you make more money or see losses from afar. Read all the indexes and visit sites that analyze them.
3. Understand the KISS Rule
The rule of “keep it simple, stupid!” is the best advice a rookie ETF trader should consider. After you create your account and buy your first portfolio, it’s time to decide whether you will hold one ETF or more. This decision can be overwhelming and sometimes filled with more uncertainty. It could also open you up to more risks, especially if you are uncertain how to proceed.
That is where the KISS rule comes in. Instead of having over three portfolios, why not choose one that is more diversified, hence limited chances of making losses? Even if one of the products makes a loss, others can always compensate for the loss. A good example is buying ETFs with a global presence and investments in different countries. This means a loss in the US can always be repaid by higher profit in Asia or Europe.
4. Know your Investment Interest
Everyone has a different reason to invest in an ETF, so you must clearly define your interests and select one that matches your needs. For example, if you are planning retirement in the next decade or more, the long-term, low-risk, and stable options are ideal to ensure your retirement is safe and guaranteed returns.
If you want passive income or are obsessed with profits, short-term EFTs are always your best option. As a beginner, they can also be a good option to help you learn the trade rules and when to sell. Remember to keep a short-term trade account to learn and earn more.
Bottomline
Remember to keep everything simple and use as much information as possible to make the best decisions. Despite having little to no experience, you should consider the safest option, which is stable and will guarantee a return. The other secret is to ensure the ETF you buy aligns with your interests and investment goals.
While balancing all this, diversify your portfolio or go for the most diverse ETF to reduce the risks.