Investing in stocks can be the most rewarding and profitable business of all. However, this could be the worst investment if you don’t know the basics or without a proper mindset.
So before you start, it is a must to know the things to consider before investing in stocks.
Self-assessment is vital in every business decision. Knowing your purpose is the ultimate step before anything else.
3 Things to Consider When Investing in Stocks
Investing is important, but before you start investing, it is vital to have these three things considered if they satisfy your needs.
1. Risk Tolerance
Would I be scared if my equity loses value? What if my Php 50,000 investment would be worth Php 30,000 after a few months? Investing is not about always winning. Playing safe either is not a panacea. It could be the riskiest decision. Price fluctuation is normal, and you could mitigate risks in the stock market.
The market price fluctuates due to buying and selling shares on the stock exchange. If more investors are buying a specific stock, the price tends to go up. If a certain stock is oversold, the price goes down. This follows the law of supply and demand.
Countless factors affect stock prices. It could be that a public company is more active than its competitors, say expansion. Thus, more investors want to earn a share of the business. Check out our other post on the top 10 billion dollar companies in the Philippines.
It is, therefore, important to assess ourselves and answer these questions.
- How much am I willing to lose?
- Will I be strong enough to accept losses?
If you are confident with your answers, you may proceed to the next step.
2. Investment Needs
Unlike other investments, the stock market is intended to be a long-term investment, say ten years or more.
In investing, periodic buying of shares is vital to achieving financial growth. Setting aside a portion of your monthly income to invest in the stock market is very important as this is one of the ways to achieve cost averaging.
The stock market is not for people who want to earn immediate income in 2 years or less. While you can expect value appreciation, optimal profit couldn’t be achieved. This is because companies tend to grow every after three years, on average.
Although there are other ways to earn in the stock market, like trading or “short-selling”, this is too risky, and you could lose all your money.
Guide questions:
- Am I planning to have sufficient money in 10 years that banks cannot offer?
- Do I want to significantly increase my investment in the long term?
If your answers are yes, you may proceed to the next step.
3. Other Priorities
You could have other commitments and still invest in the stock market. I could attest to this. Whether employed or a business owner, you should consider investing in stocks.
My main income is active. Since my energy and time are focused on my job, it is hard for me to have a business. That is why I am considering investing in the stock market.
What I usually do is invest every month and watch my money grow. I schedule my monthly investment using an automated online transfer every month, so I don’t need to do it manually. This saves me time and spares me from the pain of seeing money invested in the stock market.
Guide questions to ask yourself:
- Am I so busy with something I couldn’t leave yet that I still want to have an investment?
- Do I want to have a residual income aside from my active income?
If your answer to these questions is yes, then you are ready to invest in the stock market.
Conclusion
Investing in the stock market is easy. The real challenge is in the long haul. You might encounter a series of bear markets and easily lose your mind. However, this shouldn’t be a barrier to your investing journey. You need to manage the risk.
What else did I miss? Let me know in the comments.
