What do you actually know about investment? Have you been making the right choices? This week, we bring the fundamentals of investing to you. We believe that getting the foundation right sets the path for a better investing journey. Are you ready?
Firstly, before you even start to think about ways to invest, set your motivation right with the following questions:
The WHY - Why do you want to invest? Do you have a specific goal? Be it retirement, expenses, education and more, you should have a purpose for your investment. People often start off with the wrong motivation.
The WHAT - What are you going to do with the money? Planning for the future is always the better choice. Be careful not to spend your profits carelessly.
The HOW - How much are you willing to risk? How long are you willing to invest? How much do you have to invest without jeopardizing your income? These are common questions that everyone should keep in mind even before stepping into the world of investment.
Think, and plan, and think again
Often enough, people do reckless actions that they tend to regret. Like what Warren Buffet says, after you think, think again, if he is unable to list many reasons to buy a stock, it’s a no-go for him. Do research on the market, read books from best investors in the market, and think hard.
Something to think and ponder about is Risk. What is risk?
Risk refers to potential loss. Risks can be numerous or they can be negligible. When beginner investors are considering their investment options they need to understand the sources of risk so they can minimize the risk factors.
- Interest rate risk. Changes in interest rates can affect bond prices and bond returns.
- Purchasing power risk. Because inflation eats away at your purchasing power, the rate of inflation should be considered when investing.
- Market risk. The rise and drop of the general stock market can affect your specific investment.
- Marketability risk. The ease with which you can sell your investment.
- Business risk. If issuers have large financial and overhead commitments, the risk of default is increased.
- Reinvestment risk. The ability to reinvest your principal and dividend receipts at a desirable rate.
- Price risk. This risk is based on current interest rates and the rate of inflation.
(Taken from http://www.crown.org/Library/ViewArticle.aspx?ArticleId=431)
How much are you willing to risk?
Practice before you start
This is a very important step. Everyone knows that practice makes perfect. Although there is no perfection in stock investment, but with practice comes familiarity, and with that, you will have a better gauge at the big picture. Before dealing with the real deal, why not get some experience and confirm your trading abilities? Learn and practice how to buy and sell stocks, profits or loss, dividends..etc. And this is what TradeHero can help you with.
Keep up to date
Have a list of investing websites that you can keep updated with. Follow the trends, latest news about the market, and make sure you know what is going on. Here are a few good investing and market websites for a start:
- http://marketwatch.com
- http://fool.com
- http://wikinvest.com
- http://www.ft.com/home/uk
And the list goes on. This will allow you to choose and monitor which stock to follow, and for a start, try to choose stocks with proven profitabilities with some earnings.
Persevere
Some days, or weeks even, you may find yourself encountering with a bad market, or a bad situation. Avoid performing reckless decisions, and hold on to the stocks. When to hold on to them? “As long as the fundamentals are still sound, do not sell.” (http://www.wikihow.com/Invest-in-Stocks) However, when do you know that it’s time to sell? When the fundamentals are no longer the same and there has been major changes in the company that affects its profits. Another time to let it go is when “stock price appreciates too much above its value“.
One tip from WikiHow is you should consider selling when the price has a significant increase, 50% to 300% depending on the quality of the stock.
Do it yourself
Try as much to avoid getting stock information or tips from anyone. Do your own research, because often enough, people are getting paid to deliver such tips, and you do not want to fall into such traps that easily. Focus on a goal that you have set for yourself (Tip 1), be it 5 years, 10, or even 20 years. If need be, consult reputable bankers, brokers or advisers for tips on investing properly, and learn from the experts on the aspects of investment.
From these simple guidelines, we hope you will be able to have a smooth sailing investment journey from the start. These are not rigid guidelines but simply advice that we feel are essential and good to know as part of the learning process. Investing is not easy, but with proper fundamentals, it can lead to a great success. Have a good investing week!
Note: Information was compiled from various websites and credits go to them:
- http://www.crown.org/Library/ViewArticle.aspx?ArticleId=431
- http://www.wikihow.com/Invest-in-Stocks
- http://www.makeuseof.com/tag/8-online-investing-websites-improve-gains/
