Three Questions to Answer Before Investing in Stocks
- dummies stock
- Oct 13, 2021
- 2 min read
Updated: Nov 11, 2021
If you do not have the ability to bear losses or choose a good business to invest in, it is best not to pour money into the stock channel.
The rising stock market makes it impossible for you to sit still and stay out of the game. When some stocks are "floating", you hear a lot of good advertising and are afraid of missing out on the opportunity to make money if you do not "get on board" right away.
However, before putting money down, Douglas Boneparth - Chairman of Bone Fide Wealth Management Company (USA), author of the financial book The Millennial Money Fix - suggests how to check for yourself.
Can you afford to lose or lose money?
First, think about whether you can afford to lose. What is your tolerance for loss?
Financial experts always warn, do not try to time the market. It is very difficult to "win" the market and even harder to do so in the long run. It should be understood that when participating in this channel, at some point your portfolio will "evaporate" a few percent or more in a short time.
Therefore, one of the golden rules when investing is to determine the "endurance threshold" so that if you lose, you still ensure a healthy financial situation, the psychology is not agitated leading to panic selling of the portfolio.
Is that good business?
Before you buy a stock, make sure you understand the business thoroughly. Don't buy a stock just because you "like" the company.
Look up the company's annual financial statements as well as refer to the reports of companies and analysts. You should also take the time to attend shareholder meetings to better understand the company's strategy and leadership team. Find out how businesses make money, their financial health, profit margins, future profit potential, and their competitors...
Even Warren Buffett has to "do his homework" before investing. "Smart investing isn't complicated, though it's far from easy," Buffett wrote in his 1996 annual letter to shareholders. "What an investor needs is the ability to accurately evaluate selected businesses." Don't just invest because the business is popular or popular at the time.
Does this investment fit my overall strategy?
While this allocation depends on an investor's individual circumstances and can vary, a general rule of thumb is to allocate 5% to 10% of your portfolio to individual stocks or stocks. alternative asset class, says Boneparth. The rest should be put into less risky channels such as investment funds, savings...
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