Too Risky to Invest?

We often hear from others that investing in stocks is risky and that we cannot take risks with our hard earned money. However, we also hear of people losing their jobs, which also meant that they had lost (risked) the opportunity to have any hard earned money. I thought I could perhaps share my thoughts about this and hope that it will encourage you to learn more about investing.

Our income generally comes in two forms: Earned income such as salary/wages and Passive income such as investing in stocks, bonds, properties, taking up an insurance plan, joining an approved multi-level marketing scheme, etc.

We manage our risk of losing our earned income by first recognizing that we can one day lose it. This will then drive us to perform our work with quality and consistently add value at our workplace. We can develop ourselves through formal training as well as learning from our work experience. When we do this, we manage our risk of losing our jobs and make ourselves employable, either in the same company or elsewhere.  Likewise, learning about investment and equipping ourselves with the right knowledge help us understand and handle investment risk better.

There are several resources (institutions, experts, reading materials available, etc) that one can turn to for better management of their investments. Typically, one should evaluate a stock with both technical analysis and fundamental analysis, preferably in that order. Technical analysis is about studying the market price and volume of the stock over a period of time through charts and statistical tools to gather possible forecast of the direction of its price. Fundamental analysis is to understand factors affecting the economy, industry sector and performance of the company.

Other than having the right analysis, a very critical element in managing risk is to manage one’s emotions. The stock price fluctuates as a result of changes in demand and supply in the stock market. The market sometimes behaves like the “Bear” (i.e. economy is bad, stock prices are falling) and sometimes as “Bull” (i.e. economy is great and stocks are rising). Generally, one should have a disciplined strategic approach to guide him to make decisions to buy or sell stocks. Without managing one’s  emotions consistently, one may end up deviating from his approach and not be able to manage his risk. Another consideration to manage his risk by investing in a few stocks (perhaps five to ten) and optimize his overall earnings. He should also use only his excess money (i.e. money that he is willing to part with) to invest. When he makes money from his portfolio of stocks, he should re-invest to grow his investments rather than spend them.

Hope this help you start the process of learning to invest.

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