Making investing decisions gets easier when you know what you’re doing. Building your knowledge helps you manage risks, stay disciplined, understand your options, and work toward your goals with confidence.
Below are a few steps you can follow to keep improving your investing knowledge.
1. Get a good grasp of the basics
Start with a strong foundation by improving your financial literacy. Here are key investing principles you should understand:
- Investing comes with risks
Investments can go up or down in value and there’s no guarantee you’ll get the returns you expect. Knowing the risks helps you set realistic expectations and prepare yourself for what might happen over time.
Part of the preparation is building an emergency fund. This will cover unexpected expenses, so you won’t need to take money out of investments too early.
It’s also important to get debt under control before you start investing. This way, interest payments won’t eat into your potential earnings, and you won’t struggle with debt repayment if your investments don’t do well.
Another way to deal with investing risks is to know your risk profile. Your profile can guide you on how much risk you are comfortable taking and which investments you can consider.
- You need a goal and time horizon
Your investing goal determines your time horizon, or how long you’ll stay invested before taking your money out. Once you set these 2 things, it will be easier to identify the right strategy and products for your needs.
- Compound growth can help you reach your goal
Compounding happens when you earn returns on both the original money you invested and the money your investment has already earned.
Over time, this can make a big difference. When you understand compound growth, you’ll appreciate the power of starting early, staying invested, and adding to investments consistently.
- You should avoid biased and emotional decision-making
Bad investment decisions can happen when you let emotions and biases get the best of you. Staying aware of the effects of fear and greed, and biased thinking like herd mentality can help you avoid huge losses.
2. Understand different investment options
Another way to expand your knowledge is to read up on various types of investment vehicles and asset classes, especially ones that you are not yet familiar with.
You don’t have to put money in everything you’ll find. Instead, you can be on the lookout for opportunities to possibly strengthen your portfolio and meet goals.
3. Learn about different strategies
Strategies help guide your decisions and keep you disciplined. You might find an approach that works for you by taking inspiration from popular methods.
There are strategies for reaching goals such growth investing, income investing, value investing, and peso-cost averaging.
Other methods help investors decide which investments to buy or sell, and when. Examples include technical analysis and fundamental analysis.
There are also strategies for reducing risk and strengthening your portfolio, like the different kinds of diversification and asset allocation.
4. Stay updated on what’s important
While it’s wise to not let every headline influence your decisions, staying informed still matters when growing your knowledge.
You’ll know better when to act – and when to do nothing at all – when you can make sense of investing news and what it might mean for you.
Choose reliable information sources that can help you filter out the noise and focus on updates that may actually have an impact.
5. Learn from experience
Continuous learning also means revisiting your own mistakes and wins. You can identify factors that led to poor decisions (Were you too emotional? Ill-informed?) so you can avoid repeating them.
You may also find strong points that can help shape future decisions and encourage you to keep going.
