Before you start investing for your financial independence or for your early retirement, here are a few crucial investing pointers.
Life for a student is not as easy as it looks. From studying long hours to working for that extra bucks to leading a lifestyle in keeping up with interests and passion, the 24-hour day may seem too short for many of them. While students are busy with these essential things in life, it is important they keep an eye on their savings and investments. With age on their side, they should be clear on one thing – not to commit the same mistake which probably their parents or seniors did. So, they should have a proper savings plan with written down goals and the amount of wealth they want to create over the long term. Becoming a millionaire by the age 30 or 35 is what they can aim for.
There are no shortcuts to creating wealth. The few simple and easy mantras to build your fortune are to start investing early, choose the right assets based on goal horizons, keep adding funds to existing investments and finally have lots of patience. By sticking to the basics of investments, you will be surprised to find out the amount of wealth you would have created over the long term.
A crucial first step in starting your stock market journey is opening your first investment account. It is simpler for your money to increase the sooner you start. You can get offers to start an investment account as a college student when you are at a campus coffee shop or from a friend or relative, or even from your bank.
But, before you start investing for your financial independence at an early age or for your early retirement, here are a few crucial investing pointers.
Pay off the high debt
If you have an outstanding credit card balance, make sure to get rid of it as early as possible. The returns that would earn from the investment will get set off against the high-interest rate you will pay on credit cards or loans.
Open the right account
Before opening a stock trading account, make sure you get a hang of the types of accounts and then open the appropriate account for you. A cash account and a margin account are the two types of brokerage accounts that investment firms typically offer.
You must pay the whole amount for securities purchased in a cash account. You are prohibited from taking out a loan from your investment company to pay for transactions in this account.
However, in a margin account, you can borrow money from your brokerage company and buy securities on margin. The brokerage business utilizes the securities in your margin account as collateral for the money it lends to you in order to buy these assets, and you pay interest on the money you borrow.
Stock buying plan
Brokerages have made it easy to buy, and sell stocks from the palm of your hand using smartphone apps. However, do not overtrade or buy, or sell stocks on an ad-hoc basis without a plan. Equities as an asset class perform over time and short-term volatility may lead you to take bad investing decisions. So, you should think carefully before making any investment choices using these applications as they could have a significant impact on your financial situation.
Be extra cautious about these
When buying or selling options, investing in microcap stocks, using margin to purchase stocks, or short-selling stocks, exercise extreme caution. All investments are risky in nature and can be highly volatile, especially over the short term. Some of these risks can be increased if you buy or sell options, invest in microcap stocks, utilize margin to buy stocks, or sell short stocks.
Like other securities, options (contracts to purchase or sell a stock for a specific price on or before a specific date) provide no guarantees. You should be aware that there’s a chance you could lose more money than you put in. Some option techniques could even put you in danger of having unlimited losses.
Penny stocks, or stocks worth less than $5 per share, are included in the category of “microcap stocks,” which are shares of businesses with small or low market capitalizations. Risks associated with investing in microcap stocks include fraud, excessive volatility, and lack of liquidity (the ease with which a stock can be sold at the present market price).
Short sales entail selling a stock that you do not own. Short sellers predict a stock’s price will decline. If the price drops, short sellers can benefit by repurchasing the shares at a discount. Short sellers, however, suffer a loss if the price increases since they are forced to repurchase the stock at a greater cost. Given that stock might theoretically continue to rise eternally, short sells could expose an investor to the possibility of limitless losses.
Investing based on social media tips
Don’t rely on your investment decisions solely on data from social media. For knowledge about investment, investors are increasingly turning to social media sites like Facebook, YouTube, Twitter, Reddit, LinkedIn, TikTok, Discord, Twitch, and other online networks. Almost anyone, from experienced investment experts to social media influencers with little investing experience, may easily disseminate information on investments to a huge number of people using social media platforms, Before taking any investment advice from a social media source, you should use caution. Before you invest your money in a firm or investment product, do your own homework by reviewing its financial or public disclosures. In an effort to manipulate a company’s stock price, fraudsters may utilize online platforms to disseminate false or misleading information.
