How not to lose money, or bad advice for an investor
How not to lose money, or bad advice for an investor
Nine Bad Tips for Those Looking to Lose Money in the Stock Market. To follow them or not – everyone decides for himself. We asked the First Deputy Governor of the Bank of Russia Sergei Shvetsov to evaluate these tips and explain how you can behave in the stock market, and how you should not.
1.Invest all your money in stocks, you can even borrow for such a thing ( How not to lose money )
Before investing in stocks, set aside money for life and unexpected expenses: create an airbag, open a bank deposit, or buy low-risk bonds. Remember that investments are always risky and you can not only earn a lot, but also lose everything. Invest the amount that you are internally willing to lose – alas, this is possible. Do not borrow money for investments either in a bank or from friends – you can never invest the last money. Before jumping into battle, study the theoretical part.
2.Don’t waste time managing your investment portfolio: hired a professional and forgot ( How not to lose money )
It is believed that if you decide to trade on the stock exchange, but are not ready to waste your energy and nerves, then you can simply trust the professionals and forget about everything in the world. But the trustee also needs to be given attention, at least at the beginning of your relationship. He must be aware of your life needs and plans in order to choose the optimal pattern of behavior in the financial market for you. And who said that all trustees are professionals in their field and decent people? The principle of “trust but verify” is appropriate here as well. But in order to check how trust management is carried out, you need knowledge that, alas, no one will acquire for you. So you still have to spend time.
3.When investing, forget about the peculiarities of your character and temperament
When determining the tools you will use, correlate them with your personality traits. Brokers joke: “If you buy bonds, you sleep well; if you buy stocks, you eat well.” There is some truth in this – sometimes stocks make the investor nervous. If you are too emotional, seriously worried about losses, then trading with leverage (that is, with a loan provided by a broker) and investing in stocks is not for you: there is a risk of making wrong decisions in a panic and aggravating financial losses. And stress is bad for your health. Invest in risky instruments only if you are comfortable with losses and can act in cold blood.
4.Make as many deals as possible ( How not to lose money )
Frequent transactions in the securities market can lead to the loss of your strength, energy and even money. And do not forget about the broker’s commission, which will also have to be paid from each transaction. Speculative strategies do not always bring more income, in most cases a passive investor earns more. Although there is a joke that a long-term investor is an unlucky speculator. The choice of the optimal strategy for you depends on many factors, including what knowledge and skills you have, so take this decision very carefully.
5.Don’t stop, take back the falling market
This advice is illustrated by the saying “The father beat his son not because he played, but because he was recouping.” If the market is not going in your direction, it is better to stop, exhale and take a break. In this case, to complete the trades (to execute a stop loss) means not to give slack, but to avoid even greater losses. And you always need to clearly know how much you are willing to risk and what rules for closing a position have been agreed with your broker. It is not uncommon for a client with the help of a “leverage” – a loan provided by a broker – to lose everything in excitement and still owe exorbitant amounts. Do you need it?
6.Use inside information
Insider information gives the owner a non-market advantage, which is why its use in transactions in the financial market is punishable by law. Are you ready to serve four years in places not so remote and permanently lose your business reputation? In my opinion, the answer is obvious.
7.Better to “increase” than “save”
“Save” and “increase” are two different investment strategies. They imply not only different goals, but also different tools, knowledge and skills, investment horizon, level of accepted risk. With regard to the financial safety cushion, which may be needed at any time. The “save” strategy is the most appropriate. This strategy requires a minimum of knowledge and effort, but it allows you to overtake inflation. That is, to preserve the purchasing power of your savings. The “multiply” strategy is adequate for money that you do not plan to spend in the foreseeable future. By investing, you can multiply your funds, but you can also get negative results. Here do not go to the fortuneteller – you will need additional knowledge in order for the result to meet your expectations.
8.Trust the advice of professionals
The best strategy is to be rationally skeptical. In the financial market, especially when it comes to investments, not savings, it is better to double-check the advice of a banker or broker. They may be pursuing their own goals, not yours, by giving you advice. Be especially vigilant when it comes to free advice.
No one predicted the collapse of the USSR in 1991 or the US mortgage crisis in 2008. But these events happened and strongly influenced the financial market. You cannot be sure that there will be stability forever and nothing will happen – anything can happen, and much faster than you would like. Remember that investing is always a risk, and you need to work with risks in real time.