“Warren Buffett is famous for talking about the ‘intrinsic value’ of stocks. But while many people parrot this phrase, few know what it really means.” – Robert Kiyosaki
If you are on this blog, you are most likely interested in investing and setting yourself up for an early retirement. To the newcomers and those with a record of investing, stocks are probably go-to when the idea of investments come up. The stock market goes up and down, it’s inevitable. Most people cannot stomach the idea of their portfolio value going down, and therefore not capable of handling the stock market. If you instead invest like me, you would not care about whether the market goes up, left, down, or right, you’d just wait for your profits…
Day trading is what uneducated investors believe investing in stocks has to involve. Investing in the market has so many variations. There are mutual funds, ETF’s, options, and so much more. What I personally focus on are mutual funds, contrarian long-term investing, and a little bit of long-term growth stock investing. When deciding what sort of investing is for you, you have to do extensive research into each of the possible options. Don’t be so focused on the positives of each type of investing that you disregard all the warning signs of a risky investment or just an investment you are not willing to invest in. Me personally, I had already started investing in stocks the traditional way. At that time, I had also heard about binary options trading. I had no experience with binaries, but I was eager to get into it. I signed up with a broker and got to trading. I was getting awesome trades and then got greedy. The market turned on me and I lost around one thousand dollars in two days (says the guy who despises gambling!). Thankfully, losing that money didn’t take away any of my sleep – a position that not too many people at the age of 20 have. Nonetheless, my fault was not that I tried investing in binaries, but rather that I moved away from a trading style that worked for me and I did not study and read on it enough. Doing extensive research on your trading is not optional but HIGHLY mandatory.
There are not too many people I know who have gone into investments without doing their research and doing demos and have come out wealthy. The wealthy people I know took months and even years to know their own investment strategy inside and out. At the same time, all successful investors will tell you that when they first started investing, they lost money. It is honestly inevitable. Having demo accounts and reading a lot on it is helpful, but it is different once REAL money is put on the table. It may be the way that I’m wired, but losing money doesn’t scare me not one bit. I always know that I will make that money back just as fast so I make massive risks. Not everyone should do that.
Next is determining your level of risk based on your lifestyle.
Do you have children?
Although the majority of my audience on this blog are young adults, there may be some who have kids already. When kids come into the picture, it is probably pretty hard to allocate the money you are making towards investments. Unless you had a trust fund you probably aren’t into very risky investments. Because of this, you may be more enticed to invest in T-bonds or a mutual fund that doesn’t require much to consistently invest in nor does it require much management from you.
Are you in school?
Students who pay for their own tuition 90% of the time will not touch any investments. They are more focused on working their part-time job to pay for their tuition rather than spend it on stocks. Students in this position can still invest. If you think about it, when you get paid, taxes are removed. If you take out as little as $50 per paycheck and treat it like taxes, slowly but surely you will build a nest egg for yourself.
Do you have emergency funds?
I highly recommend people who do not have any emergency funds to consider whether investing is right for you if you only have one source of income and therefore have omitted from building an emergency fund. Your risk tolerance will be extremely low if every movement in the market effects whether you eat that night. Build an emergency of at least six months before you even think about investing one cent of your money.
Do you live with your parents?
Lastly, people who are living with their parents are probably at the greatest advantage. If you are a teenager or a young adult coming out of university, you’ve got a shelter, PARENTS. When you lose money in the market, you don’t have to wonder if you will sleep well or get dinner that night. You have got income coming from both parents, where your only main concern should be whether or not you will be passing your classes. The younger you are, the higher your risk tolerance should be. If you set up your investments well, you should have no problem investing with high risk and volatility. As a young adult, if you lose some money, you can make that money back (unless you got a loan) because you most likely are working, plus you may have some generous parents (who doesn’t love that?).
Investing can be an amazing feeling, especially when you see your portfolio growing over the years. The importance of calculating your level of risk will determine not only which type of investing is for you, but also which investing strategy will make you the most money. If you are indifferent to money and you stick to your working plan, you will go far. If you have an emotional attachment to the money you invest, take the hint that you need to reevaluate whether the market is where you belong.
Until next time, Live Long & Prosperous.