Let’s be honest anywhere where you are putting your hard-earned money into can be scary yet thrilling at the same time. I mean it can be complicated and peculiar. Yet, if you are like me, you’re secretly fascinated by it. And as the saying goes, there’s no such thing as a dumb question, and that’s especially true when it comes to investments.
Questions arise like: What will I invest in? What are the risks of investing? How long do I plan to invest? That’s why I’ve compiled a list of ten of the most common questions about investing and then asked Andrea Bacseva to weigh in with some answers to help you boost your investing. She has booked incredible results with Bitcoin and other stocks for several years.
1. How did you get started with investing? Like what was your main purpose to start investing?
Ever since we’re babies, feeling safe is one of our basic human needs. There is nothing more peaceful than knowing you don’t have to worry about something.
As we grow older, most of the difficulties in our lives come from financial illiteracy, whether we’re aware of it or not. The wrong decisions can bring us into situations like being forced to work at a job you hate just because you need to pay the bills or not having enough money to cover unplanned expenses.
During my life, I experienced some of these situations and I know the feeling that comes with them. This was the motivation to properly educate myself and start managing my finances in a way in which I’d have more control over them. That’s when I learned about investing and nothing was the same since.
2. Investing seems complicated. How much of my income should I be investing?
There is a rule every successful investor knows, and it is the following: “Never invest more than you are comfortable losing.”
Wait, comfortable losing? But, I don’t want to lose my money!
Sure you don’t! The point is: since the market always goes up and down (and nobody knows how it will behave that certain week, month or year), you should only invest an amount of money that you can live without even if the market goes down for a certain amount of time.
That’s why investing comes after saving and spending. First, one should take control over their expenses and accumulate savings to cover emergencies, preferably 6-12 months of living expenses. Everything beyond that can be invested. For people without an emergency fund, establishing one should be the priority.
3. What are the risks of investing in bitcoins?
The “risk” of investing in crypto is the same as with any other type of investment, whether that’s investing in stocks, gold, real-estate, etc. The biggest risk is to get involved in something you don’t really understand. If you don’t educate yourself, you might become a prey of scammers, use fake platforms, etc.
The risk with this of course, is to lose all your money and never hear from them again. Knowledge and careful preparation are a must!
When done properly, investing in crypto has none of these risks due to the decentralized nature of it. Of course, you can always expect price fluctuations in both directions, but this should be handled upfront, with proper planning… and the proven strategy of HODL. 🙂
4. How Much Does It Cost to Invest?
Once you’ve educated yourself and created an investing strategy that’s adequate to your goals, investing doesn’t take much money nor time. The only expenses you’ll have, assuming you’re managing your portfolio yourself, are the transaction and other platform/broker specific fees. These shouldn’t exceed 1% in annual expenses, but are usually much lower.
Of course, don’t forget to account for taxes as well.
5. Are there any tools that you use? Or articles that you read to keep up with the latest trends?
There are various sources for various types of investments.
For a beginner, it can get very confusing because of the overload of (potentially) contradicting information. So, what I always recommend is to develop a thorough understanding of your preferred asset class and the regulations related to investing in it. Of course, this would be different for people willing to invest in stocks, crypto, or real estate.
After you’re familiar with the fundamentals, it’s much easier to develop a strategy and start consuming content that’s more relevant and specific for your investment profile.
6. What are some major investing red flags?
I would point out two of the most common red flags. I picked them especially because many beginners tend to overlook them.
Red flag #1: Vague or shady looking type of platform. Usually these are platforms that have been recommended to you by someone you just met (usually online). This person approached you, and he’s offering you a place to make fast money. Pro-tip: every time you hear the words “fast money” or “guaranteed”, stay super alert and don’t ever put your money into something you don’t fully understand and trust.
Red flag #2: Overpriced assets. In investing, “bubble” is one of the most common terms. Usually during a bubble, the prices of the assets skyrocket. This is the period where most of the investors who invested earlier will have the biggest gains. But! With the rise of the certain asset’s price, its popularity also grows. This is the moment where everyone starts hearing about “people getting rich” and the FOMO kicks in. Now everyone wants to have a piece of that asset. Unfortunately, unsustainable growth is always followed by a crash.
7. How long should you invest?
Assuming that you’re not investing for a short-term profit (which is called trading), in the best case scenario investing should be a never ending activity. It should become sort of a lifestyle. The longer you invest on a regular basis, the more gains you’ll have during the years due to the magic of compounding. Of course, assuming having a diversified portfolio and sticking to your long-term strategy.
8. How often should I check my portfolio?
There is really not right or wrong about this. It depends on your curiosity and character. Usually, the long term investors don’t have to check their portfolios very often because they know that whatever is happening in the market that day won’t affect their investments in the long run. They are aware that the market goes up and down (almost every second), but they are following a stable, long-term strategy which makes the daily fluctuations irrelevant.
9. I keep hearing it’s crucial to be diversified. Why?
Excellent question! This is one of the main things I’d advise everyone! By “putting all eggs in one basket” you are dependent only on that certain asset. When you diversify, you are reducing the risk that comes with holding one asset only. And having a variety of investments generally has a bigger chance of yielding a higher return as nobody can pick the best performing assets consistently.
10. Why is risk tolerance important, and how can I figure out what mine is?
Risk tolerance is one of the most important factors to determine before any investment actions or decisions. Without determining your risk tolerance, you cannot create a winning investing strategy for yourself as your asset allocation heavily depends on it. In order to understand what your risk tolerance is, there are certain parameters to keep in mind (your age, income, expenses, goals, knowledge, expectations, just to name a few.)
At the end, it boils down to how much volatility you can bear in order to achieve your goals. A young person with no dependents and a permanent contract can allocate more money into riskier assets than a middle-aged contractor with a mortgage and a family.