Everyone invests in some kind of business. Some turn to buying commodities, some invest in real estate and some try their luck in stocks.
All kind of investments carry risks. You can never be sure of how much profit you’ll earn, if any. In fact, many investors end up losing money at least in the beginning as they have to learn the art of investment.
If you are planning to be an investor, then you have landed on the right page. Yes, investment carries significant risk, but it does not mean you should not invest at all. You definitely should, but only after knowing the ins and outs of investment.
Without further ado, let’s get to know more about investment and five tips every new investor should have:
1. Understand Your Level of Risk Tolerance
Risk tolerance is a genetically based psychological trait, which is positively influenced by income, education and wealth (as these factors increase, the tolerance of risk appears to increase) and negatively influenced by one’s age (the risk tolerance decreases as the individual gets older).
Risk tolerance basically is how you feel about risks, also the degree of anxiety felt in the presence of risk. In psychology, the basic definition of risk tolerance is the degree to which an individual chooses to risk experiencing a lesser favorable outcome in pursuit of a more favorable outcome.
For instance, would you rather risk 100 dollars to win 1,000 dollars? Or 1,000 dollars to win 1,000 dollars?
You should be very clear about the risk you are willing to take, and remember never to risk more than what you can lose.
This is why experts suggest to only invest the money you can afford to lose. Do not invest your savings but only the extra cash you have.
2. Set Long-term Goals
Before investing, one must know the purpose of investment and future needs of the funds. If you are going to need your investments returned in a short span of time, then you should not consider investing in stocks as they are a long-term investment option.
By determining the future time when are going to need the funds, you can calculate the investment amount and what rate of return would suit your expectations.
3. Know the Basics First
Take some time and learn the basics of the stock market and the individual securities which compose the market.
You should be familiar with these before making your first purchase:
– Definitions and financial metrics.
– Order types of stock market
– Methods of timing and stock selection.
– Types of investment accounts.
Study the jargon so you know all the terms that are used in the investment. You also have the option to try demo accounts as they can help you learn a lot. Moreover, you can join stock message boards to discuss your investments with other investors and get their opinion on the market.
4. Avoid Leverage
Leverage means the utilization of borrowed money to implement your stock market strategy. It seems great when a stock goes up but when it falls, you will lose your initial investment while adding the cost of interest to be paid to the broker.
Leverage is used as a tool, it is neither good not bad. Nevertheless, it should be used after you have gained confidence and experience in your decision making abilities.
5. Control Your Emotions
Be logical and do not let your emotions drive you. Make all your decisions based on research and facts. For example, do not buy shares from a company only because you like the company, buy it if it has potential.
Remember these simple tips and you will have no issues in making a profit from the stock market.