Hearing about huge crypto hikes and day-traders flipping options like pancakes has become so commonplace that most new investors are almost expecting to rake it in and retire overnight. It’s alarming that quick-win strategies are talked about way more than long-term investing, because that’s where the real bread and butter lies.
Taking it slow doesn’t have to be boring. You can build a portfolio that will spread your money across so many companies, you might not be able to keep track. The best part is – you don’t have to. Welcome to Themes trading.
But before you put your cash on cruise control, we need to explain diversification and risk tolerance.
Spread your spend
All investors should start building a diversified portfolio by spreading money across different asset classes and market sectors. The reason for doing this is to protect your portfolio against the inevitable market fluctuations: where one market sector might fall, others will rise or remain unaffected.
Themes trading is an excellent way to build instant diversification. Instead of buying individual stocks, you can buy into a thematic portfolio where stocks sharing a common theme are bundled together. We know you’ve been warned about putting all your eggs in one basket. With Themes trading, you’re buying a basket of eggs – and sometimes the chicken too.
As with any investment, you'll need to monitor and adjust your portfolio on an ongoing basis according to your individual risk tolerance and time horizon.
Before you start your build, consider your risk tolerance and time frame. You’ll also need to think about how involved you want to be in managing your investments. This is the difference between an always-on day-trader, and the set-and-forget scenario.
How much can you afford to lose?
Everyone wants to win big, but take a second to think about how much you can afford to lose. That’s your risk tolerance.
Price fluctuations are part of the stock market’s charm, and investing wouldn’t be any fun without them. Risk tolerance is a little like riding a rollercoaster – if you prefer to keep your feet on safe and solid ground, build a conservative portfolio piled high with no- or low-volatility stocks and you’ll sleep better at night. Think Disney, Costco and Danone.
On the other hand, if you’re up for riding a rollercoaster with nail-biting climbs and hair-raising drops, stack your portfolio with riskier investments and you might be rewarded with big wins. Think Netflix, Glencore and Alibaba.
When you make decisions involving risk, pay attention to the market conditions. While most investors intuitively lean one way or the other in terms of risk tolerance, good market conditions will lure some into a false sense of security. A market in turmoil is actually the best place to assess your tolerance for risk. Companies will be serving up hard numbers and facts, rather than picture-perfect portrayals of their business models.
Once you know your risk tolerance, here are three ways to jumpstart your long term investment portfolio.
1. Start with what you know
Most new investors have heard of stocks – which makes them a good place to start. Simply put, stocks – or equities – are a share in a company. Their value is a reflection of the performance of the business, so as the business goes from strength to strength, so will your portfolio.
The trade-off is that earnings from stocks aren’t guaranteed, and there is always the risk that you might lose your money. That said, even the most conservative investors allocate a portion of their portfolio to stocks, though fixed income and cash investments can provide more reliable and steady returns.
2. Spend a little and learn a lot with Themes
When you have a limited amount to invest, buying a whole share—let alone multiple shares—of a stock can seem out of reach. Themes Trading portfolios allow you to purchase a small exposure to many stocks at a price you can afford.
3. Use Themes to do the heavy lifting
If you're new to investing, you can easily become overwhelmed by all the investment choices out there. Themes trading cuts out a whole lot of the homework.
Once you’ve identified your goals, time horizon and risk tolerance, you’re likely to find a number of Themes that fit what you’re looking for. It’s like stock market speed dating, but you’re more likely to find a suitable partner. Even better, Themes trading investing doesn't make a lot of demands on your time or attention – market activity is automatically monitored, and allocations are rebalanced on a quarterly basis.
For new investors, reacting to changing market conditions can be an emotional and costly decision. It's not always easy to keep a cool head if markets go haywire. Themes trading is a way to invest while limiting the impact your emotions can have on your portfolio.
Building long-term wealth should drive your investment strategy. The earlier you start planning for the future, the better. Even small dollar amounts can grow if you remain disciplined and steadfast. Remember that achieving your goal takes time. Patience isn't just a virtue – it's often a crucial character trait of successful investors.