A good analogy to compare investing is it’s similar to riding a roller coaster. You will have some ups and downs, but hopefully given you stay along for the ride- you will be a happy camper at the end of the ride. I want to provide some tips to prevent you from playing with fire and getting burned; and on the flip side of the coin staying in the game not on the sidelines- as no risk equals no reward!
1) Take your pulse- it’s crucial to know what level of risk you believe you can take. The first question to ask yourself is your timeline, and secondly what level of return you are aiming for.
2) Take your emotions and ego out of the equation- easier said than done but in most cases digging in your heels when things don’t go your way will compound your loses into an insurmountable situation. It’s ok to be wrong and the quicker you move on from your mistakes you will avoid investing extremes. Realize you can make back that loss, and the source of your comeback can be an alternative investment!
3) Discipline trumps conviction- human emotions can really cloud sound judgement. Being patient, doing the homework, and good risk management can really help your long-term success. For example, you picked a big winner and now have doubled your money and are convinced the party just got started. A disciplined investor will take out their initial investment, as they are now playing with the houses money! If it keeps going up you have some skin in the game still, and if it suffers a setback it won’t hurt as much-win win! Bulls make money, bears make money, pigs get slaughtered
4) Know what you own- if you can’t describe your stock or mutual fund in a few short sentences you shouldn’t own it! You will feel hopeless and lost when you are trying to make an informed decision on your investment when you really can’t wrap your head around what they do. Look around you and start with brands you love and use as keeping it simple can go a long way.
5) Don’t be afraid to ring the register- I get it nobody like taxes, but that shouldn’t be the determining factor when you have a huge winner on your hands. What good does it do you if you turn a big gain into a small gain, or worse, loss when you don’t practice discipline and take chips off the table?! Don’t be afraid to sell a winner as that is the main goal-to sell something for a higher price than what you paid for at the end of the day. Buy yourself a nice cashmere sweater and move on, trust me nothing is worse than watching a big gain dwindle due to inaction.
6) Stay away from penny stocks- they are priced low for a reason! Don’t go for the get rich quickly mentality with these risky investments. Naturally people are attracted to lower dollar stocks as they can buy more shares, but at the end of the day a 15% return on a low dollar stock vs let’s say a $50 stock is the same!