We’ve all heard the famous maxim, Buy Low, Sell High but it’s easier said than done. It seems so obvious, but many investors often do the exact opposite! Because of a strong aversion to risk and the fear of loss, so many people sit on the sidelines and watch opportunities pass them by. Are you nervous about investing in the stock market? Have you had a bad experience in the past that has kept you out of the market?
Here are a few things to bear in mind as you consider investing:
What are you investing for?
The best way to navigate the investment environment is to have set goals in place and a clear plan on how to achieve them. Your focus will then largely be on accomplishing them and your plan will provide you with direction on the most appropriate way to invest your money.
What are you setting money aside for? To fund your childs education? To make a down-payment on a new home, or for your retirement? When you have concrete goals that you are working towards, you are not as easily swayed by market hype and volatility. Your own unique circumstances should ultimately determine how much, how and when you should invest.
Build your knowledge
Make an effort to improve your knowledge of investing; this will help you make better financial decisions. There is a plethora of information and research by professional analysts and experts, which will be a good guide. Investment seminars are also available that can develop you and point you in the right direction. Resolve to make the time to educate yourself.
How much risk can you endure?
Risk is a fundamental part of investing. Stock market investments are not guaranteed. Sometimes, you need nerves of steel to sit tight when the market dips sharply. It is important to be aware of your attitude to risk. If you are so risk averse that you feel comfortable in only guaranteed investments, bear in mind that when it comes to investing, playing it too safe isn’t necessarily the winning formula. If you invest only in the money market, with rates barely keeping apace with inflation, it will be challenging to achieve even the most modest financial goals.
Invest for the long term
A mistake that many investors make is putting money that they need next year in the stock market. How much money can you really afford to put away for say 5 years and beyond?
When you think of investing in the stock market, adopt a long-term strategy rather than looking to make a quick profit. Avoid investing more than you can comfortably afford to be without during your time horizon.
Historically, stocks have generally outperformed other investment classes over the long term. However, in the short term, the market can be unpredictable and carries a far greater risk of loss.
It is impossible to predict accurately what the stock market will do tomorrow. Many factors come to bear as to the way the market will go, such as market trends and economic forecasts, the political situation, investor perception, emotions, greed and fear.
Dont put all your eggs in one basket!
Don’t put all your money in one stock and dont invest in stocks alone. When it comes to buying shares, diversification is essential. Instead of investing all your money in just one or two companies, its best to diversify by buying shares in different companies and sectors.
It is also important to diversify your investments across different asset classes including real estate, money market accounts or bonds. That way, if one asset class under-performs, you will have some exposure to other assets that might do well. It is unlikely that all segments will perform in exactly the same way and decline together.
Invest in mutual funds
If you are new to investing or dont have that much money to invest, mutual funds are a very convenient way to invest. A mutual fund pools investors funds and manages them in stocks, bonds, money market instruments, etc. The benefits of mutual fund ownership include the wide variety of investment types to choose from, having a diversified portfolio of stocks, bonds and cash, and having access to professional management, usually the prerogative of substantial investors.
Seek professional advice
Most of us do not have the time or expertise to make sound investment choices without the help of a professional. Professionals have the expertise and an enormous amount of information with which they can make well-informed decisions. An advisor will work with you to create an investment strategy that suits your unique situation and your risk profile to ensure that the appropriate investments are in place for your changing circumstances. But don’t take a back seat. You should be involved and understand what is being done for you.
Don’t be greedy
Don’t be enticed by short-term profits; for every lucky person there are many more who have been badly burnt and lost their entire investment. When you make an investment, you should know your reasons for doing so. Relying upon every rumour of fabulous returns being made in the stock market in a short period of time is tantamount to gambling.
Allocate a part of your investments in a systematic investment plan. Instead of trying to time the market, invest on a regular basis say monthly, or quarterly in an appropriate vehicle, and even when your finances are stretched. It is a particularly useful tool in a volatile market as you can reduce the average cost of your shares by purchasing more shares when prices are low, and fewer shares when they are high. A consistent disciplined approach takes away the speculative element of investing and reduces stress and fear.
Be realistic about your expectations of the stock market. Set reasonable long-term profit expectations for your investments. Depending upon your own particular circumstance, your age and the time frame within which you wish to invest and your overall objectives, do consider putting at least part of your money in the Nigerian stock market; it offers great prospects for long term growth. As always, seek professional advice.
Nimi Akinkugbe has extensive experience in private wealth management.
She seeks to empower people regarding their finances and offers frank,
practical insights to create a greater awareness and understanding of
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