Investing—in any form—is a risky but oftentimes necessary method of growing and preserving wealth. Before embarking on the journey, it is important to know just where you stand financially as it can help you determine how much you can afford to invest financially. With that in mind, you should sit down and determine your net worth. To do this, a net worth calculator can be used, but ultimately your net worth is the sum of all your assets minus your liabilities. Once you’ve determined your net worth, you can start your journey to grow it. Any smart investor knows to protect their capital first and foremost before attempting to profit from it, they understand how to make safe investments.
Unfortunately, there are several forces that can work against this goal of capital preservation, from unforeseeable macroeconomic catalysts, i.e. geopolitical turmoil and severe weather conditions that cause an imbalance in supply and demand, to unfortunate company mishaps that send their stock price sharply dropping, i.e. expensive lawsuits and cybersecurity breaches. Here are tips to help you safely invest your capital for the long term.
Specialize in a Type of Investing
Having a broad knowledge of different financial assets can be useful to some extent, but you should also focus on a particular financial market, whether it’s commodities or growth stocks. While the mechanics for buying and selling are similar, financial markets have slightly varied characteristics, specifically what catalysts cause them to move. A newly enforced financial regulation may affect stocks but do nothing to move the price of currencies or precious metals. Being an expert in only a single or a couple of assets can help you quickly familiarize yourself with that asset class and enable you to spot profitable opportunities easily.
Focus on Value, Not Price
This is an investing principle that has made Warren Buffett one of the wealthiest people in the world, $85 billion wealthier to be exact. Too often, inexperienced investors focus too much on the price of a stock or precious metal rather than what their potential value might be a year or two from now. People often stock up on very cheap stocks, such as penny stocks, with the aim of buying a greater amount of shares to amplify even the smallest price movement. This results in their investment portfolio being filled with cheap yet low-value assets. Say you’re investing in stocks, look at the company’s value proposition, market share, sales and revenue numbers, and projected annual growth, to estimate its long-term value.
Consider the value of different types of safe investments. Investing in real estate in specific areas of the country may lead to extremely lucrative returns later on in life as cities expand and certain areas become more desirable.
Set a Limit For Both Winners and Losers
This is an important risk management technique that can save you from serious financial losses over time. Setting a target profit and a stop loss can help protect both existing capital and any unrealized profits that you might be holding. A stop-loss, as the name implies, automatically closes a losing position when it hits a predetermined price. A target profit, on the other hand, automatically closes the position when it makes enough money. Most, if not all, investment platforms today offer these two features free of charge. YOu can either set these two parameters through drag-and-drop on your price chart or through the buy/sell order ticket.
Don’t Blindly Follow the Crowd
Case in point, if you blindly bought GME or AMC at or near its peak during the recent surge brought by a group of Redditors, you probably would have lost money on either position. Chasing hot tips is never a good idea when it comes to investing. You want to assume a position in the market only after you’ve conducted due diligence and have identified a valid reason for pulling that trigger. While joining investment groups on social media platforms and watching CNBC or Bloomberg reports can be a great way to find leads and confirm your investment ideas, doing your own analysis is unarguably the best way to learn how to invest profitably and consistently for the long run.
Consider using various software and apps to help you track the stocks and investments you are interested in making so that you can get a better understanding of their trends. Technology for investors can help you understand the risks involved in various types of investments and when the best time to invest may be. Set up alerts on your phone for when certain stocks drop, and regularly check your portfolio for opportunities to buy and sell. Staying on top of your capital can lead to making safe investments and good financial decisions.
Be Patient
This is an invaluable attribute, especially in investing. Whether you’re waiting to place an order or holding an existing position that’s going sideways, exercising patience can help save you from headaches and financial losses. Don’t be afraid to sit on the sidelines while you wait for a better price to buy-in. That being said, it’s also important that you don’t overthink your entry price. Being a long-term investor, you have the advantage of not having to think about the exact entry price to get in on a position; you only need to make sure that the asset is intrinsically undervalued and is bound to play a role in the future.
Final Thoughts
Long-term safe investments are a great way to pad your retirement savings. But keep in mind that it also involves an element of risk. Not being careful of which assets you bet on can lead to capital depreciation. Use the aforementioned tips to stay safe while giving your capital a chance to profit.
