A general definition of investing is just buying a product such as stocks or bonds with the purpose of making money on that product. Obviously the more money you make on any given financial product the better. The problem is that it’s not that simple, there are a lot of things you will need to know if you want to learn to invest successfully. This article will guide you through some of the basics, think of it as your dummies guide to investing.
The more education you get about investing the better your results will be. Don’t try to just dive in but rather take some time to learn what investing is all about.
You may have heard the expression “don’t put all your eggs in one basket”. This refers to the fact that if something happens to your basket all your eggs will be destroyed. Many people take a similar approach when it comes to their investments. If you diversify your investments and spread them around with stocks and bonds as well as buying stocks from several different sectors, you will minimize your risk.
For example, lets say all of the stocks you have in your portfolio are from GM. What happens if the ‘impossible’ occurs and GM goes under? You lose all your investments. If, on the other hand, you had say only 1/3 of your portfolio in GM and another 1/3 in Microsoft ( a totally different type of company) and 1/3 in General Mills. Do you see how you have divided up your portfolio not only among different companies but different sectors? None of these three companies makes the same type of product so it’s unlikely that they would all have their stock prices fall at the same time. The is the basic principle of diversification.
Another thing you will need to learn to do is to take the emotion out of investing. The two biggest reasons people lose money when investing are greed and ignorance. They see a stock is going up and they think, beyond all logic, that somehow that stock will continue to go up in value. If they had sold the stock when it was at it’s highest, or at least when it was doing very well, they could have made a lot more money instead of staying with it for too long and losing money.
You have to know how to adequately research a company and it’s management before you invest in their stock. This is the number one thing you can do to protect your investment.
This is a basic overview of some of the things you’ll need to learn before you can invest successfully in stocks and bonds. This dummies guide to investing, of course, is only the beginning of all the ins and outs of investing. The best thing you can do for yourself, and your money, is to take time to be actively involved with your investments. Don’t just turn it all over to a paid adviser and hope for the best.
Talk to your advisor on a regular basis, continue to educate yourself and ask your broker questions. Remember, it’s your money and no one is going to be as concerned with it as you are.