To invest in stocks and shares, you need to have a proper investment strategy. Avoiding unnecessary financial risks, whilst investing regularly is a sure means of amassing big assets. The following are tips you should consider when beginning to invest;
- Set long-term goals
It is important that you consider how long you intend to invest-whether you may need immediate returns within a few months or are investing for the long haul. If you might need your investment back within a few years, then don’t invest in the stock market as it is volatile and does not guarantee that you will have your returns available when you need them. Talk to a Tax Lawyer and use financial calculators to estimate the amounts you need for expenses such as saving for retirement. They are available on the internet for free and are important as they help you know how much capital you need and the returns your investment should make to achieve your goals. Start to save as early and put away as much as you possibly can
- Understand your risk tolerance
Risk tolerance is the extent of variability in investment returns that you, as an investor, are capable of withstanding. Perception is a vital element of investment, the more knowledge you gain on investments, the less anxiety you will have on the risks involved.
You can avoid investing where you are anxious and try to understand your risk tolerance. Anxiety in investment is a limitation as it induces fear that makes you prone to emotional responses as opposed to logical ones. In order to achieve success in investment, you need a cool head.
- Keep your emotions in check
As discussed earlier, it is important to make logical decisions as opposed to making decisions based on emotion. The inability to control one’s emotions in the stock market is the biggest hindrance to stock market profits. When investors are generally worried about their company’s stock instead of being positive, its stock prices are likely to decline.
You should have a good reason for buying a stock or shares as well as your expected returns off the investment. You should also have a proper exit plan before buying the security and execute the strategy without emotion.
- Understand the basics of investment
It is vital that you take your time to learn and understand the basics and individual securities comprising the stock market before investing. You need to familiarise yourself with financial metrics such as earnings per share (EPS), compound annual growth rate and return on equity. You need to understand how to calculate this metric. It is also important that you know the different types of stock market order and types of investment accounts. Remember that knowledge has a direct link to risk tolerance.
Lastly, do not use leverage when starting out in investment. Leverage is the use of borrowed money to execute your stock market strategy. This prevents any risks of incurring big losses earlier on in case the stock falls.