Taking the decision to invest is a big step and one of the ways to invest your money is share dealing. But in order to be successful, you need to know what you are getting into. Investment equals potential risk!
Before you invest you need to decide how comfortable you are with risk and how much risk you are prepared to take to achieve the returns you want. Remember, higher returns are associated with higher risks, but this is not necessarily a bad thing, as increased risk can help you grow your cash quickly. However, there is the possibility that you could also lose your money.
The best way to do well is by researching what you are investing in. It is only when you know your product inside out and upside-down that you will know whether it is worth risking your money. Not a lot of people actually do this, yet it is one of the most crucial elements when investing and this can save you from making serious mistakes.
Once you have decided you want to invest, there are a few key actions that you must undertake before taking the first steps:
1. Sort out your debts by paying them off or reducing to levels that you can comfortably manage. Debts, if you were to default on your repayments, are much more expensive than the returns you'll get from investments.
2. Decide how long you want to invest, long or short term. As a general rule, the bigger the potential return, the longer the investment timeframe.
3. Don't put all your eggs in one basket - spread your investments across different markets, so reducing the risk of losing all your money.
4. Make sure you've got savings to fall back on in the event of unseen emergencies.
5. Find a good financial advisor who you feel comfortable with and who is happy to spend time discussing your requirements.
You are now on your way and can carefully study the markets to find out when is the right time to buy and to sell.
All investments are subject to risk. This means that as well as making money, there is also a chance that you could lose it. It is therefore a good idea to be a disciplined investor and to adopt a loss plan.
Determine the maximum amount you can afford and are you prepared tolerate losing. This need not necessarily be the same for every stock but it does mean you must research each stock individually to estimate how much it is likely to move. You must also consider your personality. Some people will have tighter boundaries than others, aggressive investors will hold on to stock as it continues to rise in the hope of making more money, while the conservative investor may sell the stock early to eliminate the risk of losses. Once you've decided on your numbers, you need to stay disciplined.
Finally - Even in the good times, the stock market can be volatile and share prices can move substantially in a very short space of time so it is important not to invest anything that you can't afford to lose.
Author: Adam Given-Wilson
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