By: Francisco Colayco
The first rule of successful investing: Avoid losing. The second rule: Do not lose. The third rule: Go back to rule number one. But how do you make sure you do not lose?
All investment have the potential to make or lose money. You just need to carefully study how to increase your chances of making money and decrease or even prevent incurring losses. You worked hard to earn your money;work harder to keep it. Some tips:
1. Do not be blinded by big earnings and instant wealth:
In fact, some investments are really meant to lose in the beginning before they start making money. However, there are also some investments that may not be able to recover from the initial loss. You have to understand the principles behind the business before investing.
2. Investing is not like betting on a horse race:
You don't have to pick the fastest. Choose "horses" that consistently finish the race in the top half of the lot. Get good information as to the track record of the business you are investing in, or the history of the company you are interested in.
3. Investing is a long-term commitment:
Be prepared to keep your money invested for at least five years. More importantly, in order to manage risk and stabilize earnings or gains, you should invest regularly.
4. Expect to lose at some point or another:
Be prepared to handle that loss. IF you plan well, your loss will only be temporary and you can recover quickly, or at worst, over a reasonable amount to time. This also means that you can identify the causes of your loss because you can compare what you had planned to do against what you actually did do, and what happened as a result.
5. Recover your losses:
By losing one peso, you end up with one less peso you can invest or use. You first need to recover that lost peso to bring you to "no loss, no gain." Then you will need to earn another peso in order to have money to invest again. In short, losing one peso means you will need to earn two pesos just to get back to where you started.
YOUR OPTIONS:
Stocks are the most volatile securities you can invest in,and this is why investing in stocks must be more long term. The longer your investment time horizon, the lower the risk and, potentially, the higher return. The stock market is bullish now but it could dive down just as fast. Thus, stock investments should be limited to the better companies that you can hold on to on matter how the market moves. Going in and out of the martin in short periods (week or moths) is not investing. It's trading.
I prefer to advise most savers to invest in mutual funds or unit investment trust funds (UITFs). If your personal financial plan, depending on your age and goals, will allow you to invest in equities, then equity mutual funds are a good option. However, you should choose the better-managed funds. Diversifying into fixed income and balanced funds is also a good strategy to spread your risk.
Managers of the better mutual funds and UITFs know how to ride with the ups and downs of the market. This is why you can stay invested in a mutual fund or UITF for at least three to five years. There's no need to time your buying and selling like you would if you were buying directly into specific stocks.
A couple reminders when investing in mutual funds and UITFs:
1. Buy shares with a fixed budget on a regular basis, whether the market is up or down. When the market is up, buy fewer shares. When it is down, you will be able to buy more shares for the same amount. In fact, during a downtrend, you may even increase the amounts of investment. This will give you a good low average cost per share.
2. Set your own target annual rate of return. For example, if your target is to earn 15 percent per annum, you can sell during the time when the market price of your accumulated shares already provides you this yield. Note that it is not only the price that is important, it is also the number of shares that you have accumulated that will give you the gains you have set as your goal.
No comments:
Post a Comment