Dividend investing requires diligence and experience. When first-time investors start investing dividends, they need a little help from experts to ensure that they lower the risk of their investment.
Expert investors suggest that you follow these tips:
1. Start Small and Learn the Ropes
Starting by investing too much capital is not a wise decision. Instead, dividend reinvestment plans can be found that allow you to invest as little as $10 without paying any commission. No-cost brokers also exist that allow you to save money during the initial investment process.
Ideally, you’ll invest in a company that you already buy products from and know well.
2. Invest In Index Trackers
A select few investors or managers are able to beat the market, or match it for that matter. You could start investing through index trackers that will help you save money on fees and earn a more-than-sufficient return.
3. Invest In Companies When You Understand Their Business Model
Blind investing will lose you money. Invest in companies that you understand. You need to understand the company’s business model. How do they make money? If you understand how a business is making money, you’re better able to confidently invest.
If you don’t understand a company’s business model, don’t invest in the company.
4. Choose a Strategy and Stick To It
You always want to buy low and sell high. If you jump from one strategy to the next, you’ll end up losing money and switching to less-than-optimal strategies. Experts recommend that you choose one strategy and master it.
5. Diversify Smartly
A big issue with new investors is that they want to diversify too quickly. Individual investments have been studied to determine the optimal amount of diversity an individual investment portfolio should maintain. The ideal number is 15 to 30 stocks.
If you diversify by investing in 100 stocks, you’re diluting the value of your portfolio.
6. Invest Consistently
Market paralysis happens, especially to new investors. You want to set aside money every month to invest consistently and build your portfolio. Investors, especially new investors, will see market fluctuations and stop investing.
Day-to-day market fluctuations should never halt your investment activity.
In fact, this can be the best time to invest. Money is made from investing when stock prices are low and selling when they’re high.
7. Don’t Trust A “Can’t Lose” Investment
The final tip that experts have divulged to us is that a “can’t lose” investment comes with a lot of skepticism. Investments go up and down consistently. No investment continues to grow exponentially forever. Conduct your own research into a company and be skeptical when others state that the opportunity is a “can’t lose” investment.