Part two of this series provides an insight into a number of basic principles when investing and some guidance to the mindset required.
Disclaimer: This is not financial advice and is for educational purposes only.
- ‘Your capital is at risk’. You see this statement brandished across TV advertising and anywhere that you can put your money and expect a return. Take a moment to really absorb that statement. Never risk money you are NOT willing to lose. This helps to take the emotion out of it.
- ‘Buy when others are afraid, sell when they are greedy’. When talking about markets and Crypto trading or investing, this is absolutely a great thing to remember. Our basic instinct when we see a chart go into the red would be to ‘cut our losses’. Try and take the emotion out before making a decision. Research and don’t rush into a decision.
- ‘Do your own research’. DYOR. I can’t stress how important this is. Really look into something before putting your money in. Don’t let emotions drive you. Don’t have ‘FOMO’ (fear of missing out). If you let an opportunity slide because you were cautious, that’s OK. There will be more.
- Diversify. Don’t put all your eggs in one basket! If you have $200 to invest at the end of the month, don’t put it all into a single investment. Split it up into a diverse portfolio to offer you more protection.
- Dollar Cost Average. DCA. DCA is a great strategy when it comes to investing in more long term stocks, shares and index funds for e.g. S&P500. But lets say you’ve invested some money into a project or cryptocurrency you really believe in. The price starts to go down. You’ve controlled your emotions so you don’t sell at a loss. BUT why not consider investing more, to level out your investment if your research still tells you that the market is wrong?
e.g. You buy a crypto coin for $1. The price drops 50% to $0.50. You buy 2 more for $1 more. You now have 3 coins, for $2. You only need the price to rise by 34% to $0.67 before you can gain an ROI (Return on Investment) by selling all 3. If the price goes back to where it was, you’d make a profit!
And on that note: With high risk investments, Take Profits! Many people, when they put their money into a higher risk investment, such as cryptocurrency, will not take profits in the hope that they will snowball further and further into more gains. Enjoy some earnings along the way because you don’t know when the market can turn!
You may have noticed, that these fundamentals on investment above are primarily centre around one topic: Emotions. Investment needs to be cold and calculated. You need to take into account the average mindset who will invest when they see something doing well, back out once the potential returns appear to diminish and end up in a net loss. Are they missing an opportunity because they’re driven by fear? Or should you look to cut your losses too? DYOR!
If you’ve enjoyed this two part series or gained any value from it whatsoever, please do share your feedback, opinion, suggestions and experiences with me!
