Deciding to go down the road of investments and, hopefully, financial success is only the beginning. After making the decision, you need to identify next the things that you will need to start your journey. Money is only one of those things, of course.
Without further adieu, here are four things that you need to think about first before you make your first investment.
First, you have to decide how much you are going to invest in. It may be tempting to put in as much money as you could into your first investment, but you have to bear in mind that investing is a long-term decision. That is why you have to identify how much money that you can set aside for the market for a certain period of time. You also have to identify how much you are willing to lose because, after all, investing is not all about gaining. You would need to identify this for your chat with your broker, who will be handling your investments on your behalf – he needs to know what exit and entry points you are comfortable with so he or she can give you the necessary tips and advices on which stock to invest, or which stock you should be getting out of if it gets into trouble.
Second, identify your risk tolerance. Brokers and other financial institutions will let you fill up a form to help you assess on how much risk you can tolerate, but it is also best if you already thought about this beforehand. Do you want to go for options with high risk involved but also promises high returns when the market is right? Or would you rather go for stocks and other financial instruments that promise steady growth but at a lower rate? Most people get suckered in by the promise of high returns but are unable to recognize that this could also mean huge losses if the wrong choice is made. That’s why it is very important to measure your risk tolerance before you begin investing.
Third and last, you must recognize the fact that it is very possible for you to lose money instead of gaining from your investments. Investing in financial instruments requires a very pragmatic outlook in life; you must not get carried away by your emotions and jump ship at the first sign of trouble with your investments. Prices rise and fall, and should normalize when given a bit of time. However, you must also be able to recognize when a certain investment that you have made is beyond saving and that you should bail out to prevent further losses. You should also learn when to sell off an investment to realize your profits – most investors make the mistake of holding on to maximize their gains, but they end up gaining less because they sell too late.
Investing in financial instruments is an interesting, and even fun, lifestyle to get into. However, you should be well prepared and well educated on what things you can expect from that journey in order to enjoy it to the fullest.