January.3.12Personal Finance
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Money Matters with Nimi

Far too many people are still sitting on the sidelines and are hesitant about investing in the stock market. Because of their strong aversion to risk and the fear of loss, they are watching opportunities pass them by. The stock market can seem intimidating for the new investor and for those who have had a bad experience in the past; but it needn’t be. Here are a few tips as you consider investing:

Set yourself clear goals

Before you put any money down at all, set yourself clear goals. These may include funding your children’s education, making a down payment on your new home or saving for your retirement.Investing is a journey towards achieving your goals. Where you have concrete goals that you are working towards, you will not be easily swayed by market hype and volatility. Your own unique circumstances should ultimately determine how much, how and when you should invest.

Build your knowledge

One of the best investments you can make in yourself is to take the time and trouble to improve your knowledge of investing. There is a plethora of information and research by professional analysts and experts, which will be a good guide. Investment seminars are also available that can develop you and point you in the right direction. Resolve to take some time to educate yourself. You will be surprised to see how much you can learn in a year.

How much risk can you take?

How much risk can you endure? It is important to be aware of your attitude to risk and that stock market investing comes with risk. Stock market investments are not guaranteed. This means that although you are likely to make money over the long term, you can lose your investment.

If you can’t bear to take much risk and would be devastated by any loss, it is best for you to put only a small portion of your investible funds in the stock market and the balance in money market investments. Bear in mind however, that when it comes to money, sometimes playing it too safe isn’t necessarily the winning formula. If you invest all your money in guaranteed investments, they are not going to keep pace with inflation; earning 3-4% on your savings will make it challenging to achieve even the most modest financial goals.

Invest for the long term

How much money can you really afford to put away for say 5 years and beyond? When you think of investing in the stock market, adopt a long-term strategy rather than looking to make a quick profit. Avoid investing more than you can comfortably afford to be without during your time horizon. Historically, stocks have generally outperformed other investment classes over the long term. However, in the short term, the market can be unpredictable and carry a greater risk of loss.

It is impossible to predict accurately what the stock market will do tomorrow. Sometimes the stock market makes sense and at other times no one can really explain why it is acting in a certain way. Many factors come to bear as to what the market will do, such as market trends and economic forecasts, the political situation, investor perception, emotions, greed and fear.


“Don’t put all your eggs in one basket!” Don’t put all your money in one stock and don’t invest in stocks alone. When it comes to buying shares, diversification is essential. Instead of investing all your money in just one or two companies, its best to diversify by buying shares in different companies and sectors.

It is also important to diversify your investments across different asset classes including real estate, money market accounts or bonds.  That way, if one asset class under-performs, you will have some exposure to other assets that might do well. It is unlikely that all segments will perform in exactly the same way and decline together.

Get Professional Help

Most of us do not have the time or expertise to make sound investment choices without the help of a professional. A professional advisor will work with you to create and investment strategy that suits your unique situation and your risk profile to ensure that the appropriate investments are in place for your changing circumstances. Once you become more experienced, you can become more involved.

Invest regularly

Allocate a part of your investments in a systematic investment plan. Instead of trying to time the market, invest on a regular basis say monthly, or quarterly in an appropriate vehicle, and even when your finances are stretched. It is a particularly useful tool in a volatile market as you can reduce the average cost of your shares by purchasing more shares when prices are low, and fewer shares when they are high. A consistent disciplined approach takes away the speculative element of investing and reduces stress and fear.

Invest in Mutual Funds

If you are new to investing or don’t have that much money to invest, a mutual fund may be the most convenient way to invest. A mutual fund pools investor’s funds and manages them in stocks, bonds, money market instruments, etc. The benefits of mutual fund ownership include the wide variety of investment types to choose from, having a diversified portfolio of stocks, bonds and cash, and having access to professional management, usually the prerogative of substantial investors.

Be realistic about your expectations of the stock market. If you set reasonable long-term profit expectations for your investments you will be more accepting of the inevitable periods of volatility. If you stay the course, and continue to build upon the foundations of a sound investment strategy, you can come closer to your financial goals. Depending upon your particular circumstance, your age and time frame and your overall financial plan, do consider putting at least some portion of your money in the capital market; it still offers the best prospect of real long term growth.

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