investing tips for beginners

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So You Still Want to Invest ?

We have discussed how to open up an investment account and you know the dangers of the margin account. Now you're probably asking yourself, "What's next?" The best way for you to choose your investment vehicles is to first plan out how much money you want to invest, how much you can afford to lose, how much you want to sleep, and how long you want to invest for. How do you answer all these questions? By considering the following tips.

Top 10 tips

1. Diversify
The expression, "don't put all your eggs in one basket" is meaningful when it comes to money investing. Don't put all your money in one stock. Also, buy fixed income securities (i.e. bonds) and stocks. Don't pick only one type of investment.

2. Do Your Homework
Obtain and analyze as much information as possible before making your investment decisions. This will alert you of any problems a company may have, or what to expect from your investment.

3. Set Goals & Limits
Determine the price (high target price or low stop-loss price) at which you're willing to sell. Analyze interest rates to decide what return you want.

4. Don't Gamble With Money You Can't Afford To Lose
The less you can afford a loss, the more conservative you should be in your choice of investments.

5. Don't Be Greedy
Don't expect your broker to recommend stocks that will double in value within a few months. If you do have a stock that goes up considerably — i.e. 50% or more — sell.

6. Invest For The Long-Term
Company stock prices will fluctuate, sometimes unfavourably, in the short-term. Invest for the long-term, but keep your current financial needs in mind. You never know when you might need some of that money.

7. Avoid Acting On Impulse
An impulse buy, whether at the mall or on the stock market, is still an impulse buy. Stick to your plan. Don't buy a stock on a hot rumor; you'll get burned 90% of the time.

8. Go For Value
Undervalued stocks will help create the most growth in your portfolio. Look for bonds of companies that are out of favor too. They should be selling at a deep discount.

9. Tax Planning Is Important
Consider income-splitting techniques. (Ask your investment advisor).

10. Get Professional Help
If you're starting out, hire the best professional help you can afford. Professional advice will likely pay for itself within a short period of time. Once you become used to the market, do the research yourself. Later on in the game, switch to an online broker.

Investigate Before You Invest

What do you want to invest in: stocks, bonds, mutual funds? Do you want to open an IRA or buy an annuity? Does your employer offer a 401K? Remember, every investment involves some degree of risk. Most securities are not insured by the Federal government if they lose money or fail, even if you purchase them through a bank or credit union that offers Federally insured savings accounts. Make sure you have answers to all of these questions before you invest:

• Define your goals. Ask yourself "Why am I investing money?" Maybe you want to save money to purchase a house or to save for retirement. Maybe you would like to have money to pay for your child's education, or just to have a financial cushion to handle unexpected expenses or a loss of income.
  
  
• How quickly can you get your money back? Stocks, bonds, and shares in mutual funds can usually be sold at any time, but there is no guarantee you will get back all the money you paid for them. Other investments, such as limited partnerships, often restrict your ability to cash out your holdings.
  
  
• What can you expect to earn on your money? While bonds generally promise a fixed return, earnings on most other securities go up and down with market changes. Also, keep in mind that just because an investment has done well in the past, there is no guarantee it will do well in the future.
  
  
• What type of earnings can you expect? Will you get income in the form of interest, dividends or rent? Some investments, such as stocks and real estate, have the potential for earnings and growth in value. What is the potential for earnings over time?
  
  
• How much risk is involved? With any investment, there is always the risk that you won't get your money back or the earnings promised. There is usually a trade-off between risk and reward: the higher the potential return, the greater the risk. The federal government insures bank savings accounts and backs up U.S. Treasury securities (including savings bonds). Other investment options are not protected.
• Are your investments diversified? Some investments perform better than others in certain situations. For example, when interest rates go up, bond prices tend to go down. One industry may struggle while another prospers. Putting your money in a variety of investment options can help to reduce your risk.
  
  
• Are there any tax advantages to a particular investment? U.S. Savings Bonds are exempt from state and local taxes. Municipal bonds are exempt from federal income tax and, sometimes, state income tax as well. For special goals, such as paying for college and retirement, tax-deferred investments are available that let you postpone or even eliminate payment of income taxes.
  
  
  
  

Compare Investment Vehicles

Not all investment vehicles are created equal or work for your personal financial goals. Some provide steady income and are low risk, but yield small returns on investment; others may provide significant returns, but require a long term investment commitment. There is a wide assortment of investment vehicles available. Some of the most popular include: mutual funds, traditional IRAs, Roth IRAs, savings bonds or bond funds, stocks, and certificates of deposit.Some investments pay out earnings on a regular (quarterly, monthly, or annual) basis, while others pay out earnings at the end of the investment period or may have age requirements for when you can withdraw your money without a penalty. Make sure your investment income stream matches your investment timeline.


You should also consider the tax ramifications. If you are saving for retirement or for education, consider investments that offer incentives for saving for a particular purpose. Your contributions for some investments are tax deductible, but the earnings are not taxed (e.g. Roth IRA); your contributions to other investments may not be taxed, but the earnings are taxed (e.g. traditional IRA).
You don't have to put all of your money in one investment. Consider diversifying your investment portfolio by placing your money in several investment vehicles. This can protect you from risk; while one of your investments may be performing poorly, another one of your investments can make up for those losses.

Type of Investment	What is it?	Risk level
Traditional IRA	Traditional IRA is a personal savings plan that gives tax advantages for savings for retirement. Investments may include variety of securities. Contributions may be tax-deductible; earnings are not taxed until distributed.	Risk levels vary according to the holdings in the IRA
Roth IRA	A personal savings plan where earnings that remain in the account are not taxed. Investments may include a variety of securities. Contributions are not tax-deductible.	Risk levels vary according to the holding in the IRA
Money Market Funds	Mutual funds that invest in short-term bonds. Usually pays better interest rates than a savings account but not as much as a certificate of deposit (CD).	Low risk.
Bonds and Bond Funds	Also known as fixed-income securities because the income they pay is fixed when the bond is sold. Bonds and bond funds invest in corporate or government debt obligations.	Low risk.
Index Funds	Invest in a particular market index. An index fund is passively managed and simply mirrors the performance of the designated stock or bond index.	Risk level depends on which index the fund uses. A bond index fund involves a lower risk level than an index fund of emerging markets overseas.
Stocks	Stocks represent a share of a company As the company's value rises or falls, so does the value of the stock.	Medium to high risk.
Mutual funds	Invest in a variety of securities, which may include stocks, bonds, and/or money market securities. Costs and objectives vary.	Risk levels vary according to the holdings in the mutual fund.

 

Investing Through Your Employer

Many employers encourage their employees to save for their retirement by establishing 401(k), 403(b), or 457(b) plans. Employees that participate in these programs elect to have a set amount of their income deducted from their paychecks to save for retirement; these amounts are not subject to income taxes. In many cases, your employer will match a portion of the amount of the money that you contribute into your 401(k) account, which is like getting "free" money.

If you stop working at a company, remember to take the money from your 401(k) with you. If you "rollover" the total from your old job to an account at your new job, a traditional IRA, you will not have to pay taxes on the money.

Investing With A Purpose

Why are you investing? It's OK if you have many different answers for this question, but there is a big problem if you have no answer at all. Investing is like driving - it is best done with your eyes open!

Having clear reasons or purposes for investing is critical to investing successfully. Like training in a gym, investing can become difficult, tedious and even dangerous if you are not working toward a goal and monitoring your progress. In this article, we examine some common reasons for investing and suggest investments that fit those reasons.

Retirement
No one knows whether the pension system will survive the coming decades. It is this uncertainty and the reality of inflation that force us to plan for our own retirement. You need only open the newspaper to find out about a company that is freezing pensions or a new bill that will cut government payouts. In these uncertain times, investing can be a tool to help you carve out a solid path to retirement. Three maxims apply to investing for your post-work years:

The more years between today and your retirement, the more years your money has to grow. You have to keep in mind that you are fighting inflation when you are planning to retire. In other words, if you don't invest your money to outpace inflation, it won't be worth as much in the future. The older you are when you start, the more risk averse you will have to be. This means that you will likely use guaranteed investments such as debt securities, which have lower returns. By contrast, if you start young, you can take larger risks for (hopefully) larger gains. The earlier you start learning about investing, the easier it will be to pick it up. Financial professionals are difficult to choose and costly to keep, so it is best to manage your own affairs whenever possible.

Investing for retirement is similar to long-term investing. You want to find quality investment vehicles to buy and hold with the majority of your investment capital. Your retirement portfolio will actually be a mix of stocks, debt securities, index funds and other money market instruments. This mix will change as you do, moving increasingly toward low-risk guaranteed investments as you age.

Achieving Financial Goals
You don't always have to think long-term. Investing is as much a tool for shaping your present financial situation as it is for forming your future one. Do you want to buy a BMW next year? Want to go on a cruise from Seattle to Morocco? Wouldn't a vacation that was paid for with dividends feel nicer?

Investing can be used as a way to enhance your employment income, helping you to buy the things you want. Because investing changes along with the investor's desired goals, this type of investing is not like retirement investing. Investing to achieve financial goals involves a blend of long-term and short-term investments. If you are investing in the hope of buying a house, you will almost certainly be looking at longer-term instruments. If you are investing to buy a new computer in the New Year, you may want short-term investments that pay dividends or some high-yield bonds.

The caveat here is that you need to pinpoint your goals first. If you want to go on a vacation in a year, you have to sit down and figure out the cost of the vacation in total and then come up with an investing strategy to meet that goal. If you don't have a set goal, the money that should be going into that investment will doubtless be used for other purposes that seem more pressing at the time (Christmas presents, a night out and so on).

Investing to achieve financial goals can be very exciting and challenging. Combining the pressure of time constraints with the fact that you're not usually dealing with large sums of vital money (as in retirement investing), you may be less risk averse and more motivated to learn about higher yield investments (growth stocks, shorting, etc.). Best of all, a tangible reward is at the end.

Reasons Not to Invest
Just as there are two main reasons to invest, there are two big reasons not to invest: debt or a lack of knowledge.

In the first case, it is a simple matter of math. Imagine that you have a $1,000 loan at 9% interest, and you get a $1,000 bonus. Should you invest it or should you pay down the debt? Short answer: pay down the debt. If you invest it, the money has to make a return of well over 9% (not counting commissions and fees) to make it worthwhile. It can be done, but it is much easier to find good returns on investment without having to fight losses on your debt.

There are different kinds of debt - credit card, mortgage, student loans, loan sharks - and they carry different degrees of weight when you are considering whether to invest in spite of them.

When it comes to lack of knowledge, it is a matter of "Fools rush in where angels fear to tread." Throwing your money haphazardly into investments that you don't understand is a sure way to lose it quickly. Returning to the exercise analogy, you don't walk into a gym and squat 500 pounds your first day (unless having kneecaps bothers you). In other words, your introduction to investing should follow the same incremental process as weight training.


Conclusion: Allowing for Change
Your reasons for investing are bound to change as you go through the ups and downs of life. This is an important process, because the only other option is to invest with no purpose, which will likely result in investing practices that reflect your uncertainty and cause your returns to suffer. Your reasons and goals will have to be reviewed and adjusted as your circumstances change. Even if nothing significant has changed, it is always helpful to reacquaint yourself with your reasons at regular intervals to see how you've progressed. Like running on a treadmill, investing gets easier and easier once you actually start.

Things You Need to Check Before Investing in a Startup

You may already know where to find interesting startups, but what do you do once you're actually ready to invest? It's important to conduct your own due diligence on a startup before you write a check. You shouldn’t only rely on a great pitch, or assume others are doing the due diligence for you.
Let’s go over some items that you should investigate.

1. Understand the Industry

While you are looking for startups to invest in, make sure you invest in what you know. If you are a high tech expert and someone comes along with the next great idea in biotech, you might get caught up in the hype. The problem is that you may not have a deep knowledge of the market.
Your decision could be swayed more by the sales pitch than your actual experience, making the investment more risky. Make sure you read up and understand the industry before you put any money down.

2. Get to Know the Team

When you are investing in a startup, you are really investing in the team. When the direction needs to be changed because something is not working, having a good team is the difference between success and failure. You want to make sure that the co-founders have experience in what they are trying to accomplish. Have they been successful with another company, or, if this is their first business venture, how well do they work together?
Find out what their history is with each other. Knowing who is running the business is as important as what they are trying to run. A bad team can ruin a great business.

3. Assess the Monetization Strategy

Does the company already have a strategy on how it is going to make money? Twitter focused on growing its user base at first and waited to unveil how they were going to become profitable. You should at least have an idea of a few ways that the startup can charge for its service and it should be a reasonable price that you would pay as a user. You want to make sure that the founders have a strategy even if they are not executing on it yet.

4. Size Up the Competition

You need to understand who is competing with your startup for the same customers. Are the features something that the competition doesn’t currently offer? How quickly can the competition create something similar and what would happen if they did? The competition might also have the potential to acquire the startup in question, so you'll want to investigate the competition's acquisition history as well.

 

5. Review the Adviser List

If the startup has advisers, you should call them to understand how they are helping. Are they offering advice when needed? Helping to connect with people? Or are they just a name on a slide? You should also see how long the advisory period will last.
It isn’t the end of the world if the startup doesn’t have a list of advisers, but if they are using their names as a selling point in the pitch, they should be active.

 

6. Check the Cap Table

You should look at the cap table to see how much stock has been issued and how many investors are on the list. You can see the valuation of the company and also if there is an option pool and how it will affect the shareholders.

 

7. Investigate the Financials

It is important to review the financials of a startup. Why? Because it will show you the money, of course. You can see how many assets they have, liabilities you may have overlooked and any potential revenue. You can also see how they are spending the money they currently have.
What did they spend the seed money on? Was it development costs? Marketing? Or did they give the founders raises and waste the money on toys? Every startup should have financial history, so make sure you take a look and understand the story it tells.

 

8. Review the Plans for Future Funding

How does the startup plan to use the next round of capital? They should have a solid idea of what they plan to spend it on. Typically, startups will give a high-level breakdown with sections like growth, marketing and development. It is important to get more details.
Look at the bigger expenses and understand those costs. Does development mean they are going to hire more technical people? If so, how many and at what cost? Is there really a marketing plan, or just a number they came up with because it sounded good?

 

9. Note the Burn Rate

It can take a startup thee months or more to raise capital, so you want to make sure you understand how long the money raised will last. Will they burn through the cash in six months, 12 months or longer? I like to make sure the round will last for at least 12 months — ideally 15 months or more. This allows the startup to focus more on building a great product rather than trying to ramp up for another round of financing.

 

10. Look Over the Legal Documents

You should look over items like articles of incorporation, by-laws, and board and shareholder meeting minutes. This will give you some insight into how the company was formed, who is on the board of directors, who has control, and what was discussed in the board meetings. Making sure a startup is upholding ethical and legal obligations ensures your investments will not be going toward financing shady deals.

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This is by no means a complete list, and everyone should have their own set of criteria when evaluating an investment opportunity. However, these 10 points should give you a basic understanding of a startup's health before you write a check. When you first start investing, it is a good idea to invest with other angels that have more experience or are knowledge experts in the startup’s industry. That way, they can help you out with the due diligence process and find things that you may have overlooked or should at least consider before making an investment.



Hope these tips ideas will help some…& Have a good time !