Investing: Read, Act and Hold Your Breath

Saving always requires a great deal of sacrifice on our part and anyone who has had to endure such must take the necessary steps to put the money into good use. One thing that you must do is invest the money wisely. What you invest in must be defined by your appetite for risk.

The different objectives among investors are what spurned the cliché ‘high risk, high return’. There are investments that can provide with a relatively high rate of return. The catch is that these types of investments usually carry the highest risk of going either way- up or down.

Contrary the approach sometimes used, it is important to remember that investing is not gambling. There are certain things you must know if you are to get the most return while managing risks appropriately.

For example, if you do choose to invest in the stock market, either directly or through an equity heavy unit trust, you must seek to understand the extraneous factors that might have an impact on the kind of stocks your money is invested in. In broad terms, macro factors such as growth of the economy, prevailing rates of interest and currency exchange rates can drastically affect the value of stocks.

However, each stock also has certain other factors unique to its industry niche that influence the direction the price takes. Note that even with these factors, some stocks demonstrate more price stability in the short, medium and long term and are normally referred to as blue chips. Conservative investors often opt for blue chips die to their almost guaranteed rate of return.

Your investment objectives also come into play when making a decision on what you would like to invest in. Whereas in any stock market, there will always be speculators that buy and sell stocks quickly with the aim of making a fast buck over a relatively short period of town, retail investors are advised against trying this approach.

It is true that you can make a lot of money in a short time; but you can also lose a colossal amount if a stock you had bet heavily on goes deep-south indefinitely or worse still (if the company did not have strong fundamentals) goes belly up. You would rather make smaller but steady steps in your investing goals than to aim for a one-time hit and lose everything in the process.

As you invest in stocks, it is important that you understand the companies you invest in. A strong and visionary management team coupled with healthy and realistic growth projections in the medium and long term should help provide a measure of confidence. In addition, put more emphasis on cash flow rather than on reported earnings. When looking at each company’s financial reports, the cash position should be of great importance to you as an investor as it provides an insight as to whether the company is really a vibrant business.

Lastly, when investing in stocks, patience is a virtue you will need. Research shows that investment in stocks often outperforms return on money market instruments. So if you have studied the company and have verified the strength of its business model, do not panic when the price fluctuates. Hold and you will reap the rewards.