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.