Is it ok to invest in stocks while still learning?
That’s the question one reader asked me via the comment section. I’ve already provided an answer, but I thought this was actually a pretty “universal” question and wanted to give it a more thorough answer via it’s own post.
But first, here’s the question:
“…But as a beginner, do you think it will be wise to invest in UITF like the BDO equity fund while learning? I can see from your comment above that it is wiser to learn first before investing into stocks. You mean UITF or the one you personally invest? Can you share some tips please… Thank you :)”
Now for my answer:
When it comes to investing directly in stocks, I think it’s best to learn first. It’s easy enough to buy (and even sell) but the strategy and psychology involved takes some getting used to. It’s more profitable to learn first.
When it comes to UITFs and Mutual Funds, there are some basic info you need to understand first, but for the most part it’s possible to invest right away.
When investing in equity funds, it’s good to be able to understand what the prospectus is saying, the numbers it’s quoting and how to judge if it’s a good fund for you. But that’s relatively simple.
After that, it’s just a matter of investing regularly. But to answer the question more directly: It ‘s ok to invest in equity funds while still learning as long as you understand a few key points:
- Understand that your investment will wildly change in value
- The best fund last year likely won’t be the best fund this year
- Consider cost-averaging; it’s a good strategy for any beginner investor
- Last, but most important: you really need a goal for your investment(s).
As long as you understand those, you can invest in an equity fund while learning.
At this point it’s also worth noting that some people can vary in “style”. Somewhat contrary to what I’ve been advising, I’m actually the type of person who invests and learns at the same time. I find out a little bit, and then jump in (when I’m not procrastinating, that is).
The reason I never advise that is because after a while, there’s usually a few things I learn that I wish I knew before starting. Like when I first I bought stocks directly. or when I just chose a UITF simply because the bank was near my
workplace. Another reason is that you tend to learn when something relatively bad happens (corrections, bear markets, panic selling/buying, the other bank just a few steps away from mine has a much better track record of returns, etc.)
But on the other hand, it’s better to start something and learn than to delay and forget about it. Of course, the tough part is to not get complacent and keep learning.
Investing while learning ultimately depends on what’s fits your personal “style”. But as long as you do invest, and you make the effort to learn, which comes first won’t matter that much. (except in direct stock investing, that’s a different “animal”…)
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