Investing is the first step towards securing your money for the future. The term investment refers to the act of investing money to earn profit. If done wisely and properly, investment can help you in the future. But before getting into any form of investment, it is important that you understand the ways on how you may invest in the best way possible.
Becoming a successful investor does not require extraordinary IQ or exceptional business acumen. What you need to enjoy lifetime successful investing is a solid decision-making framework.
Lifetime and successful investment requires a thoughtful plan. It’s not difficult to develop a plan but what is difficult is to stay with it in times of uncertainties and when things seem to counter those plans. Most of us have plans but can’t stick to those plans we’ve made.
What are the benefits of developing a trading plan?
When you have a plan and you stick with it, you establish optimal circumstances for experiencing investment growth. Sticking to your plan despite off the opposing popular opinion, analyst’s forecasts or current trends is a must. When developing a plan, focus on your long-term goals and objectives.
Maintain the Focus
The financial market can be erratic. There could be situations and events that can tax your emotions in terms of your strategies for investment such as when the US suffered a catastrophic terrorist attack in the fall of 2001 which sent the nation into a high level of uncertainty. This situation also weakened the strength of the market. In those times, it is important that you have your investment plan in place and stick to it. This is the time when you establish long-term focus on your goals and objectives. Remember in 2002 through 2005 when the DJIA rose up to 44%? Those investors who have let their emotions govern their strategies and sold their positions have missed out this upturn.
There are three emotions that accompany trading and they are hope, fear and greed. When the prices plunge, fears usually tells you to sell low even without reviewing your position. In these situations, you should review your original goals of investment.
An investment strategy based on hope, on the other hand, will tell you to buy certain stocks in the hope that a company’s future performance is reflected by their past performances. If you will invest primarily based on hope, you could have end up with an overvalued stock with more risk of loss than gain.
The investment strategy based on emotion can distort your reasoning for certain investments. It may tell you to hold onto a position for too long. If you plan to hold out a little longer so you gain few more points, your position could backfire and then result in your loss.