You probably realize that you need some advice or need to know about the best ways to invest. There are just too many tales of people who got things wrong and lost their savings in one of the market crashes (yes, they do seem to come along every few years), and the alternative of using a savings account at a bank probably won’t pay for a Starbucks each month, given how low-interest rates are.
Avoiding the Slippery Slope Downwards
When anyone starts to invest, they do so believing that they’re going to make money. But you need to understand how devastating any out-of-control losses can be.
If you lose 10% of your account, you need to make 11% on what’s left to get back to the start. Doesn’t sound too hard.
If you lose 20% of your account, then the figure goes up to 25% that you need to earn to make it back up. More challenging.
If you happen to lose 30%, then you need to make 43% to recover. Getting difficult!
Should you lose 50%, then you have to double what you have left, just to get back to your opening balance!
The lesson is to learn all you can and make sure that you guard against big losses.
Danger in The Different Markets
All financial markets are not created equal. When you start investing, you need to be clear about how much you are risking as well as how much you can gain.
Trading in the stock market is a sound and relatively safe way to start. Mutual funds are safer still but offer less potential reward.
If you’re looking for higher rewards, then you can trade derivatives, which allow you to leverage your money. But the same leverage that gives you greater gains can also work against you, and rapidly empty your account.
Derivatives include options, futures, Forex, and more exotic financial instruments invented by the institutions, such as credit default swaps, which have been blamed for the last market crash. On some investments, you can lose no more than your initial risk, whereas on others you can lose your whole account and even more.
Avoid Brokers Who Can Cost You Too Much
Whatever sort of trading you do, you will need a broker or dealer to take and fulfill your “orders”.
Knowing what sort of orders you can place is important, as some can save you from disastrous losses.
Knowing how your broker calculates his fees and charges is vital, as some brokers can slash your profits with their rates.
You need to review carefully the broker’s fee schedule and practice investing in stocks with a dummy account before committing your money.
Use Our Analysis for An Edge Or Learn How To Analyze For An Edge
Some people flinch when they hear the term “analysis”, thinking of the hard time they had with math in school. However savvy investors and traders use technical analysis all the time to give them an edge over the unaware public.
You don’t have to possess a degree or do anything difficult to use technical analysis, as modern computers have made any calculations of no consequence. You do need to know how to apply technical analysis to the charts and learn about trends, indicators, and other signs.
I’m Not Crazy, So Why Should I Understand How Market Psychology Works?
You need to learn that your normal reactions to events just won’t work if you are playing the markets. In fact, when you trade your natural inclinations will tell you exactly the wrong thing.
The emotions of fear and greed are most often blamed for trading mistakes, but trading brings in the whole spectrum of instinctive feelings, which you must work at eliminating if you’re going to succeed.
What’s The Point of planning?
Few investors or traders succeed without forming a plan. Those who do have usually spent time and dollars gaining the necessary experience.
When you develop a trading strategy and put it into a plan you have clear rules to tell you how to trade stocks, and how much to invest. The rules are based on tested tactics that you can rely on.
When you have proved your strategy, you know that you will gain more on your winners than you lose on the losers. Even if you have the same number of each, you are bound to end up with a profit.
What Way Forward?
Everyone is different. What works for someone else may not suit your personality, your finances, or the time you have available. The first step is to learn about the various ways you can invest your hard-earned money, and discover what feels right in your situation.