Investing In The Stock Market: Are you still sitting on the sidelines?

 

"I lost all my savings in the stockmarket. My friend told me to put everything in bank shares and I did. I lost everything. After what happened to me in 2008, I will never ever invest in the stockmarket again" Seyi  Lawyer

"Don't mention the stockmarket to me! Let me just keep my money in the bank  at least it is safe I don't know how I will educate my children with this 2% interest I am getting, but God is in control" Chinedu - Trader

Being cautious or even afraid of losing money is sensible; the problem is when the fear causes you to be paralysed into doing nothing. Far too many people continue to sit on the sidelines and have abandoned the stock market completely having been badly burnt. Some played the market too aggressively without a full understanding of the risk involved and the possible consequences. Investors are most vulnerable when they let emotions come into play. When markets nosedive, many "investors" bail out, when the markets remain undervalued, they do nothing, and when the markets begin to soar, they regain their confidence, jump on the bandwagon and dive back in and the cycle continues.

It is important to understand your money personality. Instead of investing your money in stocks or in real estate, do you find comfort in putting all your money in the bank guaranteed investments even though you are likely to earn interest at very low rates? If you are totally risk averse, you can expect very little prospect of real growth as guaranteed investments will hardly keep apace with inflation.

Regardless of what you think of the stock market, earning 2 -3% on all your savings will make it challenging to achieve ambitious financial goals. Depending upon your particular circumstance, your age and time frame and your overall financial plan, consider putting at least some portion in the capital market; this does offer the best prospect of real long term growth.

Set yourself clear goals

The best way to navigate the investment environment is to have set goals in place and a clear plan on how to achieve them, before you put any money down at all. Your plan will provide you with direction on how to invest your money.

If you have set yourself clear goals, your focus will largely be on accomplishing them rather than on your short, medium and long-term goals. you will not be that concerned about any short term whatever may be happening in the short term in the stock market, as These may include funding your children's education or making down-payment on your new home. Where you have concrete goals that you are working towards, you will not be easily swayed by market volatility.

Seek professional advice

It is always useful to seek professional advice, particularly where you don't have the time, expertise or inclination to manage your own investments. If you are not an experienced investor, it pays to use a tested investment manager to help you follow through with your plan.

Not even the most skilled investment advisors in the world could have protected investors from the recent losses suffered globally, but an experienced team with a good track record can dispassionately re-examine your investment goals, time frames, risk tolerance, and your current financial situation and structure an appropriate savings and investment plan for you.

Don't depend solely on your investment advisor; make every effort to build your knowledge of investing. There is a plethora of information all around you. Take advantage of this.

Think Long Term

One of the best ways to build sustainable wealth is to take a long-term view of investing; this is probably one of the most important pieces of investment advice there is. It is important to keep your overall perspective in view and not be de-stabilised by the vagaries of the market. When you focus on the long-term you will avoid taking drastic unplanned actions in response to short-term news, rumour, events and emotions, which to a large extent influence the ups and downs of the market.

Sound, well thought out investments, held over a long period will usually weather turbulence. As a good long-term investment plan should anticipate both good times and bad investors should be in a better position to ride out any short-term volatility without being forced to sell at a loss.

"Don't put all your eggs in one basket"

It is tempting to concentrate your available funds in just one or two investments, but this is also very risky. Build a diversified portfolio across asset classes including stocks, bonds, cash, and property. If one investment performs badly or fails, a variety of different types of investments are less likely to.

If you plan to invest, it is important to separate your short-term savings from your long-term funds. Try to estimate your cash needs and where they will come from for say the next two to three years. Are there some large school bills looming or are you planning to retire within the next two to three years? If you have enough cash in the money market to tide you over any volatile periods, you will not have to liquidate investments prematurely to provide cash to meet ongoing cash needs or in an emergency.

The money you can afford to put away for a long period of time would be appropriate for equities and other assets with potential long-term growth. Mutual funds from reputable financial institutions are an ideal option and particularly attractive for those with smaller parcels of funds to invest, as they offer both a diversified portfolio and professional management.

Invest regularly

If you are afraid of investing at the "wrong time" adopt a cost averaging strategy. Instead of trying to time the market, invest on a regular basis 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.

Learn from these unique times; the challenge for us all is to be realistic about our expectations of the market and our investment returns. If you set reasonable long-term profit expectations for your investments you will be more accepting of the inevitable periods of market upheaval. If you stay the course, and continue to build upon the foundations of a sound investment strategy, you can achieve your financial goals.

source:moneymatterswithnimi.com