The legendary investor Warren Buffet once said, “Risk comes from not knowing what you are doing.”
In life, we have to take many risks.
With every decision, there will be a risk.
Crossing a street is a basic example. We are vulnerable to accidents whenever we cross a road. However, if we know what we’re doing and take adequate precautions to avoid a collision, we may lessen or reduce the danger of a collision.
Of course, investing entails its own set of risks. The possibility that an investment may rise or fall in value is referred to as investment risk. It is this type of risk that causes investment returns to be unexpected.
There are many things we need to understand before investing.
1. Invest in a business you understand
Never invest in a stock. Rather, invest in a business. And put your money into a business that you understand. In other words, before investing in a company, you should understand what business it is in.
2. Don’t try to time the market
Even Warren Buffett does not attempt to time the stock market, though he does have a strong opinion on the price levels acceptable for specific companies. The majority of investors, on the other hand, do exactly the opposite, which financial advisors have always warned them to avoid, and consequently lose their hard-earned money in the process.
3. Follow a disciplined investment approach
It has been observed that even great bull runs have had panic periods in the past. Despite the huge bull runs, market instability has eventually caused investors to lose money.
However, investors who put money in methodically, in the appropriate stocks, and who held on to their investments patiently have enjoyed great returns. As a result, patience and a disciplined investment approach are important, as well as keeping a long-term broad picture in mind.
4. Choose a brokerage that best suits your needs
Given that low-cost brokerages are now so readily accessible, it makes sense to minimize your expenses as much as possible. High brokerage fees will definitely reduce your returns, especially if you are investing with a small capital. For instance, Traditional brokerages typically charge a minimum of USD25 per trade, that is ~1% fee on a US$1000 stock investment. Hence, from the purchase and sale of a stock, this can add up to almost 5% fees. Trading fees can build up quickly as one enters and exits several positions. Young investors who might not have as much funds to invest may also find this to be particularly intimidating.
When it comes to lowering your brokerage fees, a low-cost brokerage like Futu SG (moomoo) makes all the difference. Moomoo SG now offers lifetime free-commission trades and 1-year free platform fee for all US stocks and ETFs.
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Our Stand
Thus, the quote – “Risk comes from not knowing what you’re doing.” is something really relatable to me. To me, if we do not have a great understanding of what we are doing, it seems like a blind mouse in a maze. Similarly, in investing, the 4 crucial things to understand before you invest are: Invest in a business you understand, don’t try to time the market, follow a disciplined investment approach and choose the most suitable brokerage.
If you are keen, check out our articles on other analysis: Trust Bank Referral, Basic Cryptocurrency Terms , 5 Investing Mistakes and MapleTree Logistics Trust.
Disclaimer: The information provided by LearnToInvest serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock. This advertisement is not reviewed by the Monetary Authority of Singapore.