Either it goes up or down. Either it becomes red or green. Either it becomes positive or negative. Are you familiar with this? What is it? This is just the two scenarios which happen in the stock market.
If the market is up and the investor gains from it, he is jubilant. If he is jubilant about it, he infuses additional to his investment in securities. But when the market is down and the investor loss from it, he is wretched. When he is wretched about it and discouraged by the performance of the stock market, he may sell all his securities and hard up to come back in the world of stock market investing especially when he did not fully understood how stock market investing works. For some, they enter with this kind of investment hoping they will have a gain overnight. Sometimes, it is true. Most of the time, it is not. Therefore, when their objective is not favored, they feel perturbed. So, before investing in it, understand it first. Or, if you are already invested and you did not understand, make time to understand it. Apply some strategies like infuse additional for your investment. Like what they say, “Be fearful when others are greedy. Be greedy when others are fearful.” In times there is a red bloody market, it is best to infuse more. In this time you could buy shares at discounted price. Therefore, it is the best time to infuse.
Let us go back to the basic. What do you consider before investing? You ought to consider your investment objective, risk tolerance and know the investment risks. This is affected by age, family situation, existing wealth, cash reserves, and income. Is it for short-term or long-term? If you are young, you tend to go for long-term because there is more years wherein you could maximize your gains. On the other hand, if you are already with age (a person nearing retirement), you tend to go for short-term. The young investor has the luxury of time compared to a person nearing retirement. In addition, young investors opt to invest in speculative stocks and other high yielding commercial papers instead of blue chip companies and government securities. On the other hand, a nearing retirement person opts for security of principal than yield on investments. In considering your risk tolerance, can you tolerate if your investment drops down to 25% or else 100%? For some, what they only consider is the rewards and forgot the risks. There are many risks involved in stock market investing. Risks in managing your own fund are different in the risks involved when others manage your fund. When we say others manage your fund, it means you invest with Unit Investment Trust Fund or mutual fund which is managed by professional Fund Manager.
How could we measure what type of investor are we? Is there a questionnaire provided by Investment companies? Fortunately, there is. Some of these are downloadable from the internet.
How about measuring one’s risk tolerance? Unfortunately, there is no available yet. In our opinion, you as investor, possibly will measure your risk tolerance in investing depending on your past experiences. Some of the questions are: (a) If there is a temporary decline (i.e. one year) in the value of your investment, can you tolerate more than a 15% decline or no decline at all? (b) What is your best attitude towards investing in funds that tend to generate a more prepared to live with during the time the assets will be invested?
Know yourself. Know your risk profile. Know what investment you are transacting at. At the end of the day, all investors hope for gains. At the end of each year, all investors hope for an increase in their investment portfolio. With the right combination of understanding and tactics in investing, it is possible. But then, always remember, return is not an overnight times five of what you put in your investment. It takes time.
(The writers are both Investment Adviser and Advocate of Personal Finance. They are engaged in Stock Market Investing. Also, they are active Licensed Real Estate Practitioners. For financial planning and speaking engagements, you may contact them with mobile # 0919-376-2922 or Tel. No. (074) 244-4026).