It is important to get started, but how do we navigate through the dizzying array of financial terms?
Indices, QQQ, IWDA, stonks. These are financial terms that may seem confusing to an investor who just started out. The world of investing is vast, with many different options to choose from. This may seem daunting to a beginner investor, especially if he/she is occupied with school or work that is not related to finance.
As a full-time student in a non-finance course, I can relate to this struggle. Today, I will share the very first steps on how I navigated through this complex field of personal finance.
Understand broad terms before narrowing down to specific concepts
Acknowledge the psychological aspects of investing.
As mentioned earlier, there are many different terms in finance - stocks, bonds, derivatives, etc. However, not all concepts are relevant to a beginner. One can first consider understanding broad terms before delving into specific concepts.
For example, these are some broad questions you can consider finding the answers to:
After which, you could delve into specific concepts such as:
What are the different types of bonds (government, corporate, junk), and what are the risks associated with each?
What is an ETF?
These are some of the resources that I found helpful:
moneysense has a starter pack for beginner investors and the content itself is quite digestible.
Investopedia is usually the go-to for any finance terms.
Generally, try not to feel intimidated by the complicated terms you may encounter. Instead, jot down questions or terms you're unsure of and delve into them if a rough understanding no longer suffices.
While it is important to understand what you are investing in, no amount of knowledge can prepare you when you see red in your investments. I can personally attest to this, as I almost liquidated my investments in StashAway during the dip in March. It was a humbling experience, as it made me realize that the old adage of 'Buy Low, Sell High' is very easy to say, but difficult to put into practice.
We can use models and concrete numbers to justify our investment decisions, but our irrational impulses have an influence over our decisions. It is therefore important to constantly ground ourselves and understand what we are investing for and stick to that strategy, ignoring the high returns (and high risk) investments that others boast about, and the short-term volatility in the markets.
These are some of the books I read that helped shaped my principles when it comes to investing:
This list is by no means exhaustive, there are plenty of other books that I have yet to read that delves into the psychological aspects of investing. Some takeaways that stayed with me from reading these books are:
Everyone has their own unique experience with how the world works, and this can translate to how they invest. What seems illogical to others may make sense to you.
People's investment performance may not necessarily be due to their skills, given how this industry is dominated by luck (or risk).
If you are too lazy to read, don't worry, I got you covered. The Swedish Investor does summaries as well as takeaways from books. You can check them out here.
While it is important to invest in order to grow our wealth, it is important to also know what we are investing in and understand the risks that we are taking. On top of that, we also need to be aware of our own biases and irrational behavior.
Our journey into investing is not a competition with each other. We invest for our own personal reasons that might be different from someone else's. All in all, invest in something that lets you sleep comfortably at night.