Investing The Right Way
The market is uncontrollable, but it helps to know what youre 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. Its smart to invest in a strong stock with a record than a trend thats in one year and out the next.
Just as important as the product is the reasoning behind your choosing it. If you know why youre investing in a stock, youll always know what your next move is. For example, if you invest for the sake of profits only, when prices fall youll 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 its best to back out while youre up. When the market is low, everyone knows to cut your losses – back out before it gets worse.
Dont invest in what you cant afford, and dont 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 cant 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. Dont jump to invest before you study the products 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 Youll 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 youre 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 markets up, the rewards are well worth the gamble.