With today’s low interest rates, putting your money in a savings account isn’t the most inspiring investment. It’s safe, but with such low interest rates, you could much make better returns by building up your own investment portfolio, and with little more risk.
You have the chance to make your money work harder, creating greater returns than crawling along in low single digits with your bank. By following the advice below, you will be on the way to creating a reliable investment plan which is insulated from many of the risks associated with investing in stocks and shares.
Build a broad portfolio
Otherwise known as not putting all your eggs in one basket, this is the key to protecting yourself against the worst possible scenario: losing all or most of your money when one of your big ships goes down. By choosing portfolio of at least twenty different shares, you can afford a few to flunk because as if you’ve invested wisely there will be plenty of other stocks doing well enough to make up for the loss.
Remember: it IS a game of chance
Market efficiency can come in different forms but market price efficiency means that if the markets are efficient then a stock’s price should go up in response to positive news and valuations and should go down on receiving negative news. But in reality, this does not happen at all. Which means that all theories about market efficiency are exactly this; theories.
There are so many unforeseen circumstances which even the wisest investors miss but that’s all part of the game. Placing your money on something which doesn’t have a 100% guaranteed return; which no stock or share or any other investment vehicle ever does as is always going to be a bit of a gamble.
But you still want to insulate yourself from good and bad luck as much as possible by trading in high probabilities rather than risks or chances. By having a diverse portfolio, you will be doing precisely this.
When looking at the bigger picture, think of yourself backing the house itself rather than playing individual games. Because as everyone knows, the house always wins.
And stock picking is hard work
Choosing wisely takes time and there is no one way to pick stocks. A good place to start is using stock charts. Keeping abreast of both general market news and the latest movements in areas that could affect your portfolio is crucial. Read the financial pages as well as trustworthy specialists.
Use your personal experience
It may sound too good to be true, but walking into a shop and seeing that a lot of people are spending money is as good an indicator as any that the business is doing well. Of course, that doesnâ€™t tell you whether the company is making a profit, but your personal experiences often give you a real-world indicator of how a company is doing. It doesnâ€™t matter if an analyst tips Computer World; if every time you walk past the store is empty, go with your instincts and stay away.
Invest in the long term
It costs you money to trade, which is why brokers are sometimes keen to push people into short-term investments. It makes them rich every time you switch! Whether you listen to their advice or not is up to you, but insist on only making investments you think will hold for at least three years. Remember, your future and your finances are a long-term investment, not a poker night.
- I am a financial services writer with experience in forex trading and stock market analysis.
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