Overview – Understanding the Different Stages of Investor Learning
Learning and investing go hand-in-hand. Whether you’ve recently just found out about investing or have several years of experience under your belt, there will always be something new to learn, whether it’s knowledge you’ve never come across before or an additional skill to add to your ever-growing skill set.
While learning comes with the territory, the knowledge and skills an investor will need to acquire will depend on how far along they are in their investment careers.
Although this sounds obvious, it’s important to understand what exactly investors need to spend their time learning, otherwise, they run the risk of either learning something that’s way beyond their current skill level, or learning something they’ve already mastered long ago. In either scenario, the investor gains nothing while ultimately wasting their time and energy in the process.
By understanding what to spend their time and attention on in terms of their personal development, investors reduce the amount of time they potentially waste while making sure they have the appropriate knowledge and skills needed based on where they currently are in their investing journey.
Look Before You Leap – What to Know Before You Start Investing
Arguably the most important stage of investor learning is the lead-up to an investor’s debut. It’s no exaggeration to say that the foundational knowledge and work ethic they develop here will greatly affect what direction their future career in investing will take.
However, it’s also by far the most chaotic stage of investor learning, the reason being that there are so many potential directions to take.
Although there’s no “optimal” route for an investor to follow in terms of what to learn before they start investing, we’ll go over a sample roadmap that an investor may wish to take.
What exactly an investor needs to learn in this stage depends on what sort of investment activities they plan to pursue. For most investors, this usually means starting off with marketable securities such as stocks, bonds, ETFs, and even options, then expanding their horizons from there once they have more capital and experience to their name.
Therefore, a prudent first step would be to familiarize yourself with the types of investment vehicles you wish to pursue. How exactly do they work, and how do they make money for you? You won’t get very far in investing if you have no idea how the investment instruments you plan to own will work in the first place.
Now that you’ve familiarized yourself with some investment vehicles, the next logical step would be to understand how to evaluate prospective investments. Knowing what stocks and bonds are is great, but how do you know if a stock or bond being offered by a company is worth pursuing? Understanding how to interpret financial statements, as well as knowing how to apply certain ratios and metrics, is a good starting point for determining investment merit.
Finally, getting to know a few investment paradigms can help lay the foundation of your overall investment philosophy.
Again, depending on the type of investing you want to pursue your investor learning roadmap will vary. Not only that but the knowledge and skills you need to acquire will also depend on your own background – someone who already has a bit of investing knowledge probably won’t spend nearly as much time studying as someone who’s starting at square one.
Regardless of what direction you plan to take in your investing career, the goal here is to develop an adequate knowledge base and skill set in order to comfortably and confidently make investment decisions. The details may vary between investors, but the overall goal remains the same.
When Do I Make the Leap?
One of the big questions on the minds of almost every investor-to-be is “when is the right time to finally start investing?” After all, the whole point of investor learning in the preparatory phase is to eventually become an active investor, but at what point can you say to yourself “I now have the adequate knowledge and skills needed to take the big leap”.
In truth, knowing when to start is ultimately up to you. There’s no requirement that states “after X amount of study hours you’re now allowed to start investing”. Some people make the jump after a few months of preparation, while others may choose to do so after a year or more.
Of course, there are other factors that will also affect this decision. Having adequate capital on hand and making sure you’re emotionally prepared to handle the stress and chaos in tumultuous times are also key factors. Failure to make adequate preparations in these areas can potentially jeopardize your investing career before you’ve even started.
However, assuming these additional factors have already been addressed, and if your major concern is if you have the right knowledge and skills needed to make the leap, then again, this is your own decision to make.
To help make the decision of when to start a bit easier, it’s important to remember that no investor starts off knowing everything they possibly need to know while also having an extremely refined skill set. Many new investors understand this, so they start when they feel that they’ve reached the minimum requirements because they know that they’ll get better anyways as they go along.
Maintaining the Momentum – Investor Learning as an Active Investor
Once you’ve successfully made the leap from the preparation phase to being an active investor, it’s easy to think that the process of investor learning has officially come to a close. However, it’s no exaggeration to say that, at this stage, you’ve barely scratched the surface.
Investors need adequate knowledge and a solid skill set needed to make investment decisions, but they’ll need just as much, if not more, knowledge and skills in order to maintain their portfolios.
As an investor’s portfolio becomes larger and more complex, topics such as asset allocation, risk management, and diversification become increasingly important to know and understand in order to maintain a portfolio from unexpected circumstances while ensuring adequate performance is still being achieved.
As investors progress in their careers and gain more experience, they will eventually come to realize just how broad and interconnected investing truly is. In the article Holistic Investment Education, we go over the various fields of knowledge investors may need to draw upon when making their decisions.
Of course, investors don’t need to be subject-matter experts across a plethora of different fields in order to make effective decisions. Rather, the point is that effective investment decisions are sometimes multifaceted and that the more well-rounded an investor’s knowledge is the more complete their analysis and subsequent decisions will be.
Finally, given how quickly the investing and financial landscape changes on a seemingly daily basis, there’s always something new to learn or catch up on, whether it’s new knowledge or a new skill. One of the worst things that can happen to an investor is to work with outdated knowledge and/or have an outdated skill set.
Therefore, it’s imperative that investors make sure that the knowledge and skills they currently possess are still relevant, and if not, take the time to update them as soon as reasonably possible. Continuous learning and improvement is the name of the game, no matter how experienced, knowledgeable, or skilled an investor you are.
The Different Stages of Investor Learning Are Tough, but the Rewards Are Worth It
Regardless of where you find yourself along your investing career, there is one thing that will stay constant: putting in the time, effort, and energy needed to learn new knowledge and skills can be tough.
This applies whether you’re preparing to be an active investor someday or already have years of experience to your name because every stage of investor learning has its unique challenges. A new investor may still have trouble understanding how to apply certain ratios, while a more advanced investor may be trying to wrap their head around the optimal asset allocation strategy for their global portfolio.
Despite how tough things may currently be, investors can find comfort knowing that the challenges they must overcome today will end up paying dividends later – both figuratively and literally.
Once the new investor eventually masters the ratios they initially struggled to understand, the quality of their analysis will improve significantly. Upon creating a proper asset allocation strategy, the advanced investor may finally accomplish their goal of achieving their desired returns while also keeping risk at bay despite having investment interests all over the world.
In the end, it ultimately comes down to how disciplined you are and how badly you want to succeed. If you’re serious about wanting to achieve investment success now and in the future, then knowing how to persevere through challenging times all for the sake of reaping invaluable rewards down the road will help you achieve that.
Wrapping Up
Many investors understand the importance of learning new knowledge and picking up new skills, and while this is certainly important, it’s equally important to understand what specific knowledge and skills to acquire based on where they currently are in their careers.
The knowledge and skills that need to be learned by someone who just started learning about investing the other day will be very different from someone who currently has 10 years of experience and has a global portfolio spread across several asset classes. All investors have limited time and energy, so the last thing they want is to spend those finite resources trying to learn something that’s way beyond their current level of understanding or something they’ve learned and mastered a long time ago.
No matter where you find yourself along your investor learning journey, it’s only a matter of time before you encounter tough times along the way. Perhaps you’re having a hard time wrapping your head around a new concept, or a certain skill you’re trying to develop is taking longer than expected. Although these unpleasant times are sometimes unavoidable, the time and effort you spend trying to overcome them today will reward you several times over in the future.
