Exercising money muscles: 5 investing tips that can help improve your financial health
With the right tools, support and practice, investing can be an effective part of your financial fitness program.
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There are lots of different ways to enhance your financial fitness.
Good savings habits, prudent spending, creating budgets, investing and more are all very important to your overall financial health.
These skills don't appear overnight. Yet with time, practice and real-world application you can make better financial decisions.
Investing can be a component of this process. It's a way to grow your money, enhance your financial skill set and spot new opportunities.
Now, it should be noted that investing can be high-risk and it's not necessarily for everyone.
But if used judiciously and with the right support, it can be an effective way to enhance your overall financial fitness.
We spoke with Josh Gilbert, market analyst at eToro, to get some insights into some of the key steps investors can take when they're starting their investing journey.
1. Practice with a demo account
One of the understandable factors that tends to put people off investing is the risk of losing real money.
Getting to grips with the intricacies of the trading market can be daunting at first. But there are ways to learn the ins and outs without risking real cash.
Many trading platforms provide a demo account when you first join.
Demo accounts can be a great tool for learning to understand how to trade assets, how assets react to wider market events and when you should buy or sell.
"Starting with a demo account allows investors to get a feel for capital markets before committing their own capital," Gilbert says. "As the old saying goes, practice makes perfect, and that can be applied in investing."
An example is eToro's demo account, which provides you with $100K of virtual funds.
You're then able to "trade" with this money in an environment that matches the real-world trade market. This will allow you to test out your strategies before you start investing real money.
"It's also a great time to help you grow your knowledge, and apply what you already know."
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2. Get educated
As with anything in life, investing in yourself is one of the best investments you can make.
Trading is always evolving, and accordingly, it's important to stay up to date with the latest developments within the trading community and wider market.
Understandably, most new traders go online in search of information.
One of the great things about the modern internet is that there is a wealth of information about trading available. YouTube videos, social media, Reddit threads, dedicated websites and more are in place to help traders in their journey.
With that said, not all of that information is created equal. As a new trader it can be very unclear which sources are worth paying attention to.
Gilbert points to eToro Academy as an example of a useful resource.
Included with the eToro trading platform, it's an extensive hub that features more than 100 courses, webinars, podcasts and other resources for traders.
"It doesn't matter if you are a complete beginner, an experienced investor, or anywhere in between," Gilbert says. "The eToro Academy can help you deepen your understanding of the markets and grow your investing skills."
3. Learn from the experience of others
One of your best resources as an investor is the experiences of your fellow investors.
So how can you access them?
Mentorship and in-person catch-ups can unquestionably be valuable for developing your investing skills.
Developing friendships within the community is important for any serious trader, too. No single trader is an island, it's essential to have a network that you can share knowledge with.
Sometimes, you can also find resources via your trading platform, too.
With 30 million users around the world, eToro represents an opportunity to draw from an extensive range of investment experiences.
"eToro is a social investing network, so it was built on the principles of community, knowledge-sharing and better access to financial markets," Gilbert says.
"In practical terms, this means investors can discuss markets with other investors, learn from experienced traders while copying them, and share their own wisdom whilst taking in others."
Gilbert also points to Copy Trading as a feature of eToro that can also allow you to benefit from the experience of other investors.
"Copy Trading allows investors to automatically copy successful traders and open the same positions as they do," says Gilbert.
"This feature is a great solution for those who wish to start investing but don't have the time to research every single investment. Instead, our Popular Investors do the hard work for you."
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4. Diversify your portfolio
When people start investing, they often have a comfort area where they like to invest. It might be a particular industry or a handful of select companies.
But to be a successful investor long term, you'll eventually need to branch out.
Diversifying your portfolio helps you invest at different risk levels and helps insulate your portfolio against wider market cycles. Over time, it can also help you spot opportunities where you didn't previously realise they existed.
So, where to get started? Well, sometimes, diversification will flow logically from your initial investments. However, it's often better to take a more calculated approach.
Gilbert points to eToro's Smart Portfolios as a means to get started with the diversification process.
eToro's Smart Portfolios are created and compiled via a blend of machine learning, data science and tailor-made methodologies.
"Smart Portfolios give investors access to innovative investment themes," Gilbert says. "They're designed to help starting and experienced investors alike diversify their portfolios, minimise long-term risk and take advantage of current market opportunities without portfolio management fees."
Tools like eToro's Smart Portfolios can serve as a basis for you to start from, while you gradually develop your own skills in portfolio diversification.
5. Start small and grow gradually
When you're adopting new habits, financial or otherwise, an all-or-nothing approach rarely works. You're much more likely to be successful if you start small and then gradually scale upwards.
Starting small with investing is also a way to minimise the initial risk that comes with investment. For example, eToro allows you to start investing with just US$50.
Over time, you can scale up as you see additional successes. There's no rush to the finish line, investing is a long-term activity and should be viewed as such.
Learn more about investing with eToro today
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