Tips of the trade: How to build confidence as an investor

In this article, we went over five easy steps for new investors. If you’re interested in investing and have no idea how or where to start, it’s the perfect primer. 

However, most people don’t just want to invest ― they want to invest confidently. So this time around, we’ll discuss best practices and methods to build your confidence, while highlighting specific eToro tools and features to help you along the way. 

Start with what you know 

Just like in other walks of life, the smartest investors know their strengths and weaknesses. Legendary investor Warren Buffett frequently preaches just that with his “circle of competence” theory, in which a successful investor evaluates assets and makes decisions within their areas of expertise, while ensuring to remain inside those boundaries. 

Even though you may be a rookie investor, you’d likely feel more confident investing in companies and sectors you are familiar with. And the more you know about any given one, the more confident you can feel in forecasting the value of your investment.

Luckily, eToro offers users a wide range of assets to invest in, including stocks, cryptocurrencies, and ETFs (exchange traded funds). Get familiar with the choices available on the exchange, and decide how you want to allocate your funds based on your areas of expertise and confidence level.

Learn what you don’t know

Of course, just because you aren’t an expert on every asset class or industrial sector doesn’t mean you can’t expand that knowledge. If you feel the need to broaden your exposure to certain investments, there is a wealth of resources available to become more informed. 

For starters, you can read up on historical data and how certain sectors (e.g., energy, tech, financial, health care, consumer goods) perform over time. Stocks can be categorized in multiple ways, including how they behave and earn yield for their investors (e.g., growth stocks, cyclical stocks, defensive stocks). Knowing all of these nuances can do a lot as far as expanding your knowledge and confidence level when selecting assets.

To help create better informed investors, eToro also provides helpful resources and tools. Each asset page includes an accompanying social feed, stats, performance charts, research, and relevant news. In addition, content like eToro Academy and our weekly The Bottom Line series provide a wealth of educational material and up-to-date industry analysis.

Test your knowledge 

Perhaps you know what you want to invest in, but aren’t quite ready to take the plunge (i.e., invest real money). As we discussed in our psychology of social investing article, people are cautious with their money, and rightfully so. 

At eToro, we have a solution for that called Virtual Portfolio. Before depositing real funds, you’ll be able to invest with $100k in virtual money (i.e., play money). You’ll still have access to all of the same assets and portfolio-building features, but you can get your feet wet with zero risk. It’s a great way to get some practice reps while exploring eToro’s social investing community. 

Check yourself

Or in other words, don’t get overconfident. It’s great to feel like you know what you’re doing, once you’ve got your investing sea legs, but the markets don’t care about any of that. Be honest with questions like these: Can your investment handle a big selloff? Do you understand the risks that you’re taking on? Do they align with your goals? 

A great tool for keeping your investments in check is our Risk Score feature. In simple terms, your portfolio is assigned a Risk Score from 1-10 (for general reference: 1-3 is considered low, 4-6 is medium, and 7-10 is high). Multiple factors go into the Risk Score algorithm, including the day-to-day volatility of each asset, the percentage of equity invested in certain assets, the direction of each position, and more. 

And since markets move constantly, your Risk Score is calculated on a daily basis, providing investors with the most up-to-date assessment of their risk exposure. 

Lean on others

As important as it is to build confidence on your own, it doesn’t mean you have to go it alone. A survey we conducted showed that 58% of people prefer gaining skills and knowledge from others in a community. 

That’s what social investing is all about. Being part of an investing community on eToro means never having to feel alone on your journey, but rather, one of millions of like-minded people, many with similar investing goals and desires as you. Instead of asking one person a question, you can source answers from millions of investors around the world.

In addition to the broader social investing community on eToro, there are also the CopyTrader and Smart Portfolio features currently available for crypto investing. Whether it’s one of the site’s most popular resident investors or our curated portfolios, you’ll have options to automate your investing strategy with no need to manually reallocate assets. 

Keep at it 

Finally, confidence will only go as far as you let it. Longevity is an important part of investing, especially if your financial goals are also long-term. Strategies like dollar-cost averaging limit your monetary exposure from one buy to the next, to defend against market volatility, making sure you always have skin in the game. 

To make the process of continuous investing more easy and part of your normal schedule, eToro has added a feature for recurring deposits, on either a weekly, twice-a-month, or monthly basis. 

Above all, remember that it’s not just you who struggles with this investing thing. We’re all students of the markets, even the pros. But don’t let that be an excuse not to focus on educating yourself. When you’re ready, we’re here for you.