The world of investments offers a dangerous draw: huge rewards with the
chance of terrible losses. Investors love the idea of accumulating
wealth, but no one likes losing money. The trick is to know how to
invest with minimal risk. Nobody can predict the fluctuations of the
market completely accurately, but as you start investing, you’ll learn
to take the losses and look forward to the next market high.
The market is uncontrollable, but it helps to know what you’re
investing in. Become familiar with the products and businesses you
invest in before you make the jump. Too many new investors invest in a
hot stock from the previous year, excited by the market high. Remember:
market highs never last. It’s smart to invest in a strong stock with a
record than a trend that’s in one year and out the next.
Just as important as the product is the reasoning behind your choosing
it. If you know why you’re investing in a stock, you’ll always know
what your next move is. For example, if you invest for the sake of
profits only, when prices fall you’ll know to drop out, instead of
fretting over whether to wait and cross your fingers for the next
market high, or cut your losses.
Investments are all about timing - not the timing of the market highs
and lows, but the timing of your moves in relation to them. You have to
know when to take profits and when to cut losses. Some say when the
market is up, run a profit in case the market keeps climbing. However,
others worry the market will fall, so it’s best to back out while
you’re up. When the market is low, everyone knows to cut your losses -
back out before it gets worse.
Don’t invest in what you can’t afford, and don’t invest without a good
reason. While the market highs are satisfyingly rewarding, the market
lows are part of the ride. Although much of investing is gut instinct,
you can’t afford to make reckless decisions. Invest to your advantage,
rather than let the market rip at your bank account.
The best thing to do is study the market. Don’t jump to invest before
you study the product’s record and think over your reasoning. Some good
books about investing include The Real Life Investing Guide by Kenan
Pollack and Eric Heighberger, The Only Investment Guide You’ll Ever
Need by Andrew Tobias, and The Wall Street Journal Guide to
Understanding Money and Investing (3rd Edition) by Kenneth M. Morris
and Alan M. Siegel. Know what you’re doing and why before you start
investing.
When you make informed choices, you can gain many benefits from the
market. The business world is unpredictable, but when the market’s up,
the rewards are well worth the gamble.
