Trying your hand at investing can be both exciting and scary at the same time. On the one hand, you have an opportunity to grow your money. But on the other hand, it can be risky and you might lose a chunk of your money.
The Hard Truth about Investing
The truth is that you should never invest money that you’re not ready to lose. This is part of the game. Even the most experienced investors make mistakes and endure losses. The key is to make more good decisions than bad ones so that your profits dwarf your losses. That’s investing in a nutshell. That said, there are steps you can take to put the odds in your favor.
Identify Your Risk Tolerance
The more money you have at your disposal, the more flexibility you’ll have. You can take on riskier investments and enjoy better rewards. Generally, risky investments are short-term in nature and more volatile. While you can make more money in a shorter time, there’s also the risk that you’ll lose a chunk of your investment or even lose it all. So, decide how much risk you’re willing to stomach. If you’re a cautious investor, you’re better off with more stable investments.
Be Aware of Your Personality
Some people are risk-averse, while others have a daredevil streak in them. They enjoy the adrenaline rush that comes with taking on risks. Just like gamblers, they’re hooked on the idea of winning. If you can’t afford to lose your capital, and you know you have the tendency to risk it all, you’d actually be better off just buying ‘boring’ funds and letting your money earn interest. You do not want to tempt yourself into making poor investment decisions. Like Warren Buffet said, “Investing requires qualities of temperament way more than it requires qualities of intellect.”
Learn about The Product
Before investing in any company’s stock, learn about the company and its products first. Study the company’s performance and philosophy. With the recent ‘woke culture’ pervading many companies, their stocks have seen massive drops in value. As an investor, this will not bode well for your investments. So choose your investments wisely.
What’s Your Financial Commitment?
Generally, winning at investing means playing the long game. You should have enough money saved for emergencies and if you’re investing, you should NOT be stretching your budget. You don’t want to be in a situation where you’re selling off your shares just to pay the bills. Your investments should ‘operate independently’ and not be impacted by your daily expenses and so on. Make sure you’re debt-free, have an emergency fund saved up, have sufficient insurance coverage, have a portion of your income going towards a retirement account, and once you have all that taken care of, now you may invest what’s left over. Yes, it’ll take you a while to get here but you’ll be a far better investor when you’re not under financial stress daily.
Set Limits and Cut Your Losses
When you buy a share, set a limit to sell… and this goes both ways. If the price of the share is dropping, you must have a limit it can drop to. Once it hits that, sell the shares immediately. Do not cling to the investment because you’re emotionally attached to it and hope that things will turn around. In most cases, it will only get worse. So, cut your losses. If the price of the share rises, decide on a price that you’ll sell it at. You want to cash out your profits before the market changes. Sometimes, you may notice that the price keeps rising, and you can hang on for a while, but the moment you see that the price rise is slowing down or if it starts to drop, immediately sell your stocks and cash out. This is especially true if you’re close to retirement.
Don’t let greed or emotions run your investment strategy. Always remember that as an individual investor, you’re investing your own money. Unlike bankers or traders who can use other people’s funds and are protected by the banks/firms they work for if you take a loss that loss is yours and yours alone to bear. So, be prudent and cautious in your approach.
Last but not least, educate yourself on investing. The more financially literate you are, the better informed you’ll be when it comes to making investments. The most important investment you can make is in your own financial education. Get it right, and the sky is the limit. “An investment in knowledge pays the best interest.” Benjamin Franklin