When you understand your risk tolerance , you are likely to avoid investments that will make you anxious . You do not have to make an investment that will deny you sleep at night and peace during the day . Anxiety will stimulate fear that will trigger emotional responses to the stressor .
Diversify your investment
Experienced investors eschew stock diversification with the confidence that they have carried out necessary research to quantify and identify their risk . They are comfortable that they can identify the potential risk that can endanger their position , and will liquidate their investment before incurring a catastrophic loss .
When engaging in stock market investing , the most populous method you can use to manage your risk is by diversifying your exposure . Many investors own stock of various companies in different companies and countries . They have an expectation that no single adverse event will affect all their investments to a similar extent .
It is safe to have stocks in five different companies so that you are sure at least two companies will have good profit margins , two will have small profit margins , and one might dissolve to pay its debts and investors . Diversification will allow you to recover from losing the whole of your investment by the small gains you make from the stocks .
Avoid leverage
Leverage means using borrowed money to create your stock market strategy . When you have a margin account , financial institutions like banks and Sacco will give you loans to invest in the stock market . Using borrowed money exaggerates the movement of price . This activity will sound great if the stock moves up but what if it moves the other side ? You might end up losing your investment plus the levers money . Leverage is neither a right nor wrong tool , but you can consider using it if you have enough experience and confidence in your abilities to make decisions .
Control your emotions
The biggest obstacle to making profits when in stock market investing is the capacity to make logical decisions and control emotions . In the short-term , the companies ’ prices will reflect combined emotions of the whole investment community . When many investors are worried about a particular company , its stocks will decline , but when they feel positive about the future of the firm , the tendency of the stock rising in price is high .
An individual that feel negative about the market is known as a bear while the positive one is the bull . During market hours , the ongoing battle between bulls and bears can be seen from the continuous change in the price of securities . Such short-time movement gains their driving power from rumours , hopes , emotions , and speculation , other than using the management , prospects , and assets of the company .
When the stocks perform well , you will have questions about whether to take your profit out or not . These issues will be constant especially if you are price conscious and when you want to make a decision about an action . Since emotions will act as your primary action driver , you might end up making wrong decisions .
Conclusion
From history , stock market investments have been enjoying a significant return on other investments and proving complete visibility , easy liquidity , and existing regulation to provide a fair playing ground for all participants . Investing in stocks is an opportunity to create significant asset values for individuals that are consistent savers . The younger you begin to invest in this market , the greater the results you will have at the end of your projected period .