– Stéphanie Tumba
With a new year come opportunities to get involved in a new field. Many people are realising the potential of investing in businesses or real estate as opposed to keeping their funds sat in savings accounts and this can turn into a lucrative business if you make reasoned and strategic choices. With many people not knowing where to start on their investment journey here are my 5 top tips for getting starting in investing so that you are primed to for investment success.
1/ Only invest money you can lose. First and foremost, keep this golden rule in your mind. It may seem like common sense but many first-time investors are drawn into ‘too good to be true’ deals and invest way more than is sensible initially, blinded by the potential returns. In reality, there is no such thing as a ‘certain’ investment as there is always a chance things may not go to plan; the unfortunate reality is statistics show that 7 out of 10 start-ups do not survive more than 3 years. Options such as property are often more attractive for initial investors, but investing in business can provide the opportunity to make a larger return, so it is important to be well researched and only put in what you can afford to lose to minimise initial risks.
2/ Educate yourself: A great way to build your confidence in the investment circle is to utilise the experiences and knowledge of others – they have gone through it so you don’t have to! There are many fantastic books that can equip you for your first investment; my first read was Angel investing: the gust guide to making money and having fun investing in startups by David Rose.
Similarly, you could join a business angel club so you can not only learn from more experienced investors through their events but it can also provide an invaluable support network throughout the investment process. Try to attend as many seminars, conferences, or trainings on the subject as you can before making your first investment and continue your learning along the way!
3/ Are you ready for a long-term relationship? – It is important to consider exactly what it is you want from your investments, besides the return. I recommend investing in start-ups only if you think it’s exciting and fun and you’re prepared to build some long-term relationships. If you want to make money quickly, you will probably have to consider another avenue. Start-up investment is a long-term commitment as most start-ups have negative cash flow for the first two to three years, meaning they lose more than they earn. Some only break even after 5 years so potentially avoid this area if you are looking for a speedy exit. However, if you want to create a long-term relationship and see the progress along the way, consider start-up investment.
4/ Diversify your portfolio – It is important throughout your investing career that you do not put all your eggs in one basket. I started by committing small sums to 5-10 companies. For any investment, the risk of failure is relatively high, no matter how good the idea sounds, so by having a large and diversified portfolio, you will avoid the “all or nothing” side. This could be achieved by mixing real estate with investment in start-ups. As previously mentioned, investment in start-ups requires building a relationship with those in the business so don’t invest in too many start-ups so you are not able to build in enough time to follow up. As a rough guide when you start to build up your investment portfolio, you could choose to test the water and invest £1000 in 5 to 10 different start-ups through platform such as Seedrs or other equity crowd funding platforms.
5/ Stay informed! If you have previous investment experience in stocks, you are probably used to checking their daily price and all the latest news online to inform yourself on when is the right time to buy and when is the right time to sell. If you decide to start seed money investments, a more practical mind-set is necessary. It is not only about having a general knowledge of the business and economic climate; you should be committed to establishing a relationship with your start-ups so you remain up to date with what’s going on in the company – this could be through weekly newsletters and monthly catch up.
Getting started in investing can be a daunting prospect if it is a completely new industry for you but the benefits that you can unlock are numerous, and are not purely monetary. By following these 5 top tips you will be able to put your best foot forward and begin navigating the world of investments more confidently
