Finance at your fingertips by Moses Ayiku, Jr. MBA OP/ED
The past year has seen the stock market move like a roller coaster! Covid, the economic downturn and now the hesitant recovery, have all influenced the stock market. The cryptocurrency market has also seen a high level of volatility.
All the above indicate that investing in the stock market is full of risks. One must be prepared with a game plan and stay the course as much as possible. Other than that, any price changes will lead to large amounts of stress and investment decisions that may not bode well for you as an investor in the long run.
It is important to determine the type of investor that you are and the goals that you have before you start investing in the financial markets. The amount of information on financial markets is at times overwhelming. The markets only seem to become more complex with time. However, remember why you are trying to learn about the financial markets.
For one thing, a lack of knowledge about financial markets would make it difficult for you to invest in a manner that would give you a positive return. You are interested in the financial markets because as an investor you could let your money work for you by investing in the markets. You also want to invest because you want to see your money grow over time.
Keeping your money under your bed or in a savings account will not lead to any meaningful growth. In fact, if the inflation rate is higher than the interest rate on your savings account, you can lose money with time. In other words, the value of your savings would continue to fall if the inflation rate is higher than your savings rate. Let us say for example that inflation is 3.2% per annum. By subtracting the rate of return or interest on your savings from the rate of inflation, one can determine the rate at which your money is losing value.
Meanwhile your savings account is giving you a return of 2% per annum. In effect, the money in your savings account is losing value by 3.2 – 2 = 1.2 % annually! This is not a situation that one would want to be in.
When it comes to investments, one principle you may want to follow is this; if you do not understand the investment, do not put your money in it. This is a basic principle that could save you a lot of stress and hopefully help you avoid losing money. When one looks at the cryptocurrency market, with its recent fall, this is an important lesson that we all need to take note of. If you do not understand the market, how can you strategically invest without losing your shirt?
The question must be asked and answered, what type of investor are you? Are you a pre-investor? This type of person has little knowledge of the financial markets and as a result does not invest in the financial markets. Passive investors on the other hand, have chosen to invest in unit trusts or funds managed by fund managers with expertise on the financial markets.
As a result, such investors do not have many decisions to make when it comes to their investments. They leave the bulk pf the decisions up to the fund manager for example. Such investments are a credible option. However, when one is shopping for such an investment, please research the fund management costs. If the fund management costs are too high, that could absorb any or most of the pending returns that you could have accrued.
An active investor on the other hand has a high level of knowledge about the financial markets, has a game plan and buys and sells stocks regularly.
Investing in the markets require that you educate yourself about the financial markets. These days there are many training programs that can assist you to learn about the markets and how they operate. As you continue to read about the financial markets, you will see your knowledge base increase.
One simple way to stay in tune is to start taking the financial news as well as business news segments more seriously. As you listen in on a regular basis you will learn a lot about the markets and that will bolster your confidence for the day that you start investing.
Before you begin investing in the financial markets, it is important to also determine the amount of money that you are prepared to invest in the market on a regular basis. Someone for example, may decide that after paying their bills and placing a percentage of their income into savings, they are prepared to invest $200 per month into the financial markets or stocks. Another person may be prepared to invest much more monthly. It depends on your finances and the decision is ultimately yours.
Another factor to consider is your age. A young person is looked at as someone who has many investing years ahead of them. Such a person may be prepared to invest in higher risk securities with the hope of attaining higher returns. The rationale is that should the young person lose money, they have more years of investing ahead where they could alter their investment approach away from high risk.
Alternatively, the closer one is to retirement, the more prudent it would be to stay away from high-risk investments and follow or invest in steady and sure investments. Again, the rationale is related to working years. With fewer working years ahead of you, one would not want to invest in volatile stocks that could risk your retirement funds. It is that simple.
In conclusion, it is quite easy to go online or pick up a phone and start investing in stocks. That is not a prudent decision if one has not learnt about how the market operates. In addition, it is important to identify your investment goals, determine how much you want to invest and for how long. All these will feed into your investment profile and assist you as you start your investment journey.
Remember, we are all different and the approach that you select may seem awkward to another investor, but they have a different investment profile! Focus on absorbing as much as you can about the financial markets. Listen to the business and financial news segments regularly.
Go online and use Google to research and study about stocks. Find out whether there are any videos on YouTube that could easily explain stocks to you. If possible, join other investment groups online and ask questions!
There are many solid stock courses out there and that is another way to bring yourself up to speed about financial markets. Check out the website of stock trading companies and brokers. Many of them have very detailed training sections on their websites and in most cases, this training is for free! By doing all the above, you will increase your chances of attaining your investment goals. You will also minimize the risk of losing your shirt due to a lack of knowledge.
Please feel free to share with me your questions and experiences on stocks and investments. I will do my best to respond, and, in some cases, I will write on some of these questions.
Your questions and comments can be sent to localtalknews@gmail.com.
