Everyone needs a hobby. Some like to play sports, learn a language, or read books; others enjoy making art or music. These days, however, many have started investing as a hobby.
Ensure you can afford investing as a hobby
Because investment is all about money, it’s easy to forget the real cost if you’re making investments for your own amusement. If you’re investing for fun, make sure you’re not playing with more than you can afford to lose. Most hobbies cost money, but it’s important to make sure that things don’t spiral out of control. Know your limits and your budget in advance; then, stick to those parameters rigidly. Avoid leveraged accounts or anything with unlimited potential losses.
Don’t try to run before you can walk
Understand that you’re a beginner. As with any profession or skill, investing can look easy to the outsider; watching the Wimbledon finals makes tennis look simple, for example, but once you pick up a racket you realize that isn’t the case. Investment markets are complex and difficult to understand; there is no secret formula. Small investments into simple markets can be fun and exciting without risking your savings or damaging your long-term financial plans. If you don’t have any long-term financial plans in place yet, you probably shouldn’t be thinking about investing as a hobby.
Learn the basics before you invest
You wouldn’t join a rugby match without learning the rules. You certainly wouldn’t try skydiving after watching a how-to video on YouTube. Before you decide to put your hard-earned cash into any market, figure out the options open to you; make sure you are familiar with the rules and structure. There is an awful lot of jargon in the financial world. Regulations can be difficult to understand, especially if you’re an expat in a country whose language is not your own. What might seem very simple in the first place could have hidden risks, costs, and pitfalls.
Know the risks of investing for beginners
Be wary of trading services that offer you a dummy account to start with. They are often designed to put you into the mindset that risks and losses don’t matter. Every investment carries some element of risk, but they vary hugely and are amplified by someone who doesn’t know what they are doing.
A novice investor sticking to low-volatility, low-risk assets could easily lose all their money on transaction charges by trading too frequently. The same investor could lose everything in a volatile market by not trading often enough or failing to monitor the market, which can change in a moment. There’s a good reason that investing is a full-time job for many people.
Different kinds of investments will carry their own risk profiles. Investing in managed funds can be stable and predictable. However, they’re best for sensible financial planning because a team of professionals makes the day-to-day decisions. Many hobby investors choose to invest in spreads, pairs, currencies or CFD’s (contracts for difference). These trades can move very quickly, so they might be exciting but carry extremely high risk — and you can even lose more than was originally invested.
Seek investment advice from the right place
It seems that everyone has investment tips and tricks. If you’re only risking a couple of euros, then you might not be too concerned about the quality of the trade. But if someone is trying to tell you how to run your portfolio, ask yourself a few questions.
First, are they an expert or professional? If not, should you really be taking their advice? If they were really that good at investing, they would probably be doing it for a living. Second, are they telling you about something that has already happened? Many people offer second-hand advice or anecdotes that won’t help all investors in the future. Following this can be a terrible plan. Investing in yesterday’s success is usually a waste of time and money.
If you’re interested in learning more about investing as a hobby, speak to your financial adviser; they will advise the best ways to get started. You’re not going to turn into an expert investor with an offshore investment portfolio overnight, but that’s just fine. Once you have your financial goals in place and your long-term investment strategy laid out, it may even help you understand more about how your money can work better for you.