Do you have the urge to invest a larger amount of money? Before doing so, consider a few options.
Investing is one of the riskier forms of capital appreciation. The money can be invested in a company or lent to a friend who runs a business. Among the more passive forms are investments in shares, open-end mutual funds or investment certificates. The basic rule applies to all these options. Don’t invest all the money you have available.
We can show the whole process of investing a larger amount of money with a simple example.
Felix Mužný inherited a million crowns from his grandmother. Until then, he had no experience with investing. That is, apart from the investment life insurance, which was once arranged for him in his youth by his friend, who was a financial advisor at the time.
The above has several ways to handle the money. He can fulfill a couple of fleeting children’s dreams or donate money to charity. After a discussion with several friends – investors – Felix decided to buy shares and participation certificates for all the money inherited. Buying shares for a million is not unusual. That is, if it is not all your money.
Felix bought the titles through RM-System and waited for the evaluation. He succumbed to rumors that some money could be made on the stock market. The rumors are true to some extent, but they must not be trusted too much. It so happened that two months after the purchase, the value of individual shares began to decline. What with this? It is this situation that will perfectly test the investor’s psyche. Basically, there are several approaches to do to make any decline, or volatility, as pleasant as possible.
To avoid fluctuations in the value of your portfolio, buy stocks in smaller quantities, but more often. If you have a million crowns, you can invest for three years, for example. Every month you buy securities for 30 thousand crowns. However, you can reinvest any dividend income.
The second option is to initially buy a larger number of shares and thus create the basis of an investment portfolio. Then slowly buy more stocks.
Both approaches eliminate to some extent the risk of entering the market at the most inopportune time when stock prices are too high. The correction in the form of a price drop is not pleasant.
Do not time the market
Another scandal perpetrated by both laymen and seasoned investors is market timing. In practice, this works by the investor carefully monitoring developments in the capital market and trying to find a time when stocks are at their minimum. Only a negligible number of investors will be able to time the market well. A slightly larger set are those who simply hit the black line.
If you don’t want to invest full time, don’t time the market. At the same time, however, it pays to monitor information from the economy. Buying stocks at a time when prices are highest is also not advantageous.
Many analysts and economists have one rule. Once the media begins to discuss how markets are falling, this is the best time to go public. At least for a small investor. He is sure that he will not buy too expensive.