wealtharticles-investing_in_volatile

Investing In Volatile Times, 20 October 2008

These are crazy times and a crazy market. Volatility Index is at all time high. The mood of the markets swing from end to end without anyone making much sense. In these aspect, should we or should we not enter the market.

To time the entry of the market is one of the most challenging jobs ever. Even more challenging than running for election or speaking in public. I have never met anyone out there who say that they could successfully time the market. Even professional traders dare not put a dime on timing the market.

The investment market place is shark infested and will eat you up if you just rely on hot gossips or tips. Nearly everyone I met who either buy into stocks due to a hot tip or hot gossip are either dying in the marketplace or are already dead. Cruel as it is, the marketplace is such that there is no win-win situation. Someone makes means someone has to lose. It is just a matter of how big or small the loses are. For those who win are the same thing.

So then how can we be smart in investing. Here is 5 top secrets to do before investing anything in the market.

1. Be educated
Know what you are going to get into. Study finance and I don't mean the whole lot. If you want to invest in stocks, study them. There are a whole lot of resources these days on the net as well as bookstores. At least start with knowing what is Fundamental Analysis and Technical Analysis. Because I believe these are the two things you have to decide which will take precedent over the other when it comes to making an investment decision.

The recent case on Lehman's minibods have caught many investors off guard. That is why this should be number one on your list if you are going to start investing now.

2. Check your financial health
Make sure you are not substantially in debt before you start investing. To invest with a whole load on your shoulders is not very wise. I call it gambling. You want to invest, not gamble. That is why go check with a financial adviser on your liquidity ratio, solvency ratio and so on.

Investing can be very emotional at times because we get emotional when we win or we lose. That is human nature. I have seen people betting on the market even when they are heavily in debt and in the end, the market just swallowed them up. You cannot let emotions run the show, but then again it is easier said than done.

3. Know your limits
If you have $10,000 to invest, than invest that only. Never leverage to get more. Make up a strategy and have stop losses. Be prepared to take a loss when necessary. Many a times investors, me included (in the past) would hold on to a stock even after we know we made the wrong decision.

This is what I called the investor ego syndrome. This is a number one investment sin. Knowing that it is a bad investment decision and letting it sink is just as bad. My advice, cut your losses.

4. Stay invested long-term
If you want to stay invested, stay for the long-term. If you do not have the time to monitor the market stay in it forever. Because history has proven that people who stay invested long-term benefit. Therefore throw away volatility and just be in it. What ever the waves come and go, you are not wavered. This is the easiest strategy to employ.

5. Re-balance
Never be afraid to stay in cash. Look into opportunities when others are not, like now, this period in time is where you look into opportunities because everything is at cheap.

Warren Buffet's strategy has always been in value investing. Value means everything is cheap and yet will likely increase over time. Therefore it would be good to move in and out of the market when the time permits. Moving out doesn't mean you are not invested, it is just that you have moved into some other investments. At least that is what made Warren Buffet rich.

Investing can be a complicated exercise but yet it is much needed in everyone's desire to have wealth. So don't give up when you have made some investment mistakes. Learn from them, do not repeat them and make sure you come back trying again.

Take these 5 steps with you, it will go a long way and get a good Financial Adviser to be with you all the way. Godspeed!

By, Calvin Yeo, CFP, Certified Financial Planner, Financial Adviser, Financial Trainer, Financial Coach and a Public Speaker, 20 October 2008. yeo.calvin@yahoo.com