Whether they’re working in the business world or stay-at-home mothers,
many people today are drawn to the risky allure of investments, which
can mean either huge rewards or painful losses. While it’s impossible
to predict the fluctuations of the market with 100% accuracy, as you
build your portfolio, you will learn to accept the losses and keep in
mind the successes always waiting around the corner.
No one can control the market, but you can control what you invest in.
Research products and know the businesses you’re putting your trust -
and, more importantly, your dollars - in. One of the most common errors
new investors make is jumping to invest in a hot stock from the
previous year. It’s a common pattern for a market high to descend to a
market low - right at the time you’re investing. This is not always the
case, but it pays to invest in a strong stock rather than a fad that’s
in one year and out the next.
It’s also important to know why you’re investing in that particular
stock. For instance, if you invest strictly to gain some momentum, when
prices fall you’ll know to drop out; otherwise, you’ll sit there
wondering whether to wait it out or cut your losses.
Ironically, while it’s impossible to predict the market, investments
are all about timing. Two of the most important decisions investors
make are when to take profits and when to cut losses. When the market
is up, some say it’s best to run a profit - a risky choice that could
mean a huge loss or an enormous reward. However, many prefer to take
their money while the market is rising, in case a fall is on the way.
When the market is down, nearly everyone agrees it’s best to close out
before it gets worse to avoid losing any more money, cutting your
losses.
Most importantly, only invest what you can afford, and have a good
reason for investing. Losses are a real part of investment, which means
you can’t afford too many rash decisions, especially when you’re
starting out. Don’t let the market determine your bank account unless
you’re using it to your advantage, whatever that may be.
The smartest thing a new investor can do is study the market. Before
investing in a product, look at its record. Don’t jump into any
investments - think them over first. Some good sources of information
about investments include The Wall Street Journal Guide to
Understanding Money and Investing (3rd Edition) by Kenneth M. Morris
and Alan M. Siegel, The Real Life Investing Guide by Kenan Pollack and
Eric Heighberger, and The Only Investment Guide You’ll Ever Need by
Andrew Tobias.
If you stay well-informed and make careful decisions, the market can be
an exciting tool. In the business world, anything can happen, and with
the market highs come enormous rewards that are well worth the risks.
