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The legendary investor Warren Buffet once said, "If you don't find a way to make money while you sleep, you will work until you die". Now, before you all start scratching your heads, we like to believe that he was referring to investing. Investing is the best time-tested way to make your money work for you, earning while you sleep. Compounding works marvellously, and to benefit from its effects; you need to start investing your money regularly.
However, investing is an affair that involves risk, so it is recommended first to gain basic knowledge before you start investing. Here's how you can effectively learn to invest:
1. Define your risk appetite
As mentioned before, investing is a risky business. Hence it becomes very important to determine how much risk you are willing to take (risk appetite). Once you determine that, you can look at different instruments of investment and choose your own best fit. If you have a low-risk appetite, you can consider investing in large-cap stocks or gold/silver. On the other hand, if you can afford to lose money but crave higher returns, small-cap stocks and cryptocurrencies might be the way to go.
2. Define Investment Goals
If you are just starting out in your profession, one of your investment goals could be to raise your account balance. You may wish to create income in addition to growing and protecting your wealth as you age. Your investment objectives may include purchasing a home, saving for retirement, or paying for college. Goals can evolve over time. Just be sure you define and regularly review them to maintain your focus on accomplishing them.
3. Learn Diversification
After classifying and calculating the risk involved with their investment, only skilled investors diversify their stock portfolios. Before diversifying their investments, however, novices must obtain experience in the stock market. Diversifying exposure is one of the most popular risk management strategies.
Diversification can help you recoup that loss with earnings from other companies, making it a better investment for you than if you had only invested in one company.
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