SHOWCASE MAGAZINE | 2018
success, we often overlook the
most powerful tools available
to us: time and the magic of
compounding interest. Investing
regularly, avoiding unnecessary
financial risk, and letting your
money work for you over a period
of years and decades is a certain
way to amass significant assets.
Here are several tips that should
be followed by beginning inves-
tors.
1. Set Long-Term Goals
Why are you considering invest-
ing in the stock market? Will
you need your cash back in six
months, a year, five years or
longer? Are you saving for retire-
ment, for future college expenses,
to purchase a home, or to build an
estate to leave to your beneficia-
ries?
Before investing, you should know
your purpose and the likely time
in the future you may have need
of the funds. If you are likely to
need your investment returned
within a few years, consider
another investment; the stock
market with its volatility provides
no certainty that all of your capital
will be available when you need it.
By knowing how much capital you
will need and the future point
in time when you will need it,
you can calculate how much you
should invest and what kind of
return on your investment will be
needed to produce the desired
result. To estimate how much
capital you are likely to need
for retirement or future college
expenses, use one of the free
financial calculators available over
the Internet.
future Social Security benefits, are
available at Kiplinger, Bankrate,
and MSN Money. Similar college
cost calculators are available at
CNNMoney and TimeValue. Many
stock brokerage firms offer similar
calculators.
Remember that the growth of
your portfolio depends upon
three interdependent factors:
1.
The capital you invest
2.
The amount of net annual
earnings on your capital
3.
The number of years or
period of your investment
Ideally, you should start saving as
soon as possible, save as much as
you can, and receive the highest
return possible consistent with
your risk philosophy.
2. Understand Your Risk Toler-
ance
Risk tolerance is a psychological
trait that is genetically based, but
positively influenced by educa-
tion, income, and wealth (as these
increase, risk tolerance appears
to increase slightly) and negative-
ly by age (as one gets older, risk
tolerance decreases). Your risk
tolerance is how you feel about
risk and the degree of anxiety
you feel when risk is present. In
psychological terms, risk tolerance
Retirement calculators, ranging
from the simple to the more com-
plex including integration with
74
is defined as “the extent to which
a person chooses to risk experi-
encing a less favorable outcome
in the pursuit of a more favorable
outcome.” In other words, would
you risk $100 to win $1,000? Or
$1,000 to win $1,000? All humans
vary in their risk tolerance, and
there is no “right” balance.
Risk tolerance is also affected by
one’s perception of the risk. For
example, flying in an airplane or
riding in a car would have been
perceived as very risky in the
early 1900s, but less so today as
flight and automobile travel are
common occurrences. Conversely,
most people today would feel that
riding a horse might be danger-
ous with a good chance of falling
or being bucked off because few
people are around horses. The
idea of perception is important,
especially in investing. As you gain
more knowledge about invest-
ments – for example, how stocks
are bought and sold, how much
volatility (price change) is usual-
ly present, and the difficulty or
ease of liquidating an investment
– you are likely to consider stock
investments to have less risk than
you thought before making your
first purchase. As a consequence,
your anxiety when investing is