Invaluable Investment tips for first time investors

Investor’s stock market fundamentals must be straight before they start using investment tips via this route. Stock investment has always been plagued with rumors related to risks involved with stocks market investments. But it must be understood that risk level in stock investment is a result of ‘uninformed and unplanned’ decision. A good investment tips will pay returns year after year. We will discuss here few age old stock investment tips that will help investors make a wise and long term stock picks.

Basic Investment tips (A): Identify your Investment Goals

Investment is not an option it is a necessity. People do investments to meet their financial goals. Every body has their own personal financial objectives of life. The amount of money people get from our pay cheque is not always sufficient to meet the requirements. Hence people look for savings and investment to make their money grow faster. Unless and until one knows that what is their financial requirements of life they can never plan for them beforehand. So the first investment tips for a wise investment is to know the requirement and set time lines to all requirements. After setting the time lines we must verify whether the requirement can be met from existing savings. If answer is no then you will have to invest your savings. Investment tips will multiply the savings faster and hence enabling you to reach your requirements. One investment option is stock market investment, but it shall be only considered as a long term option. When we say long term it shall be minimum 5/7 years. The best investment tips for long term investment will be to buy quality stocks at a discounted price. Anybody who wants quick bucks can of course investment in stocks but risk involved is big.

Basic Investment tips (B): Know your risk taking capability in dollars

Before one start to invest in stock market, the person must understand their risk taking capability. Let us discuss a very simple method to evaluate a personal investment risk profile. All investment tips are based on assumption that an investor knows his risk taking capabilities. Lets take an example, a person earns around $800 per month. He is able to save some $175 per month. Ideally his risk taking capability becomes $175, but it not always like this.

• Out of $175 he has observed that in some months he needs to take around $65 form this savings. Means his risk taking capability is reduced to $110 ($175-$65).
• He has also observed that he needs to keep at least $45 as his cash reserves (cumulating) each month for contingency. Hence his risk taking capability becomes $65 ($110-$45).
• This $65 is that money that even if it gets stolen (worst case scenario) it will not affect his living standard. Once one knows this figure ($65), this becomes his ultimate risk taking capability. There are people for whom this figure is in negative; such people should not venture into stock market investments. But very often the reverse is true, only such people (who has no spare money) puts their hard earned money into stock market for making quick bucks.

Basic Investment tips (C): Learn to value stocks and then pick one

Someone having sufficient risk taking capability must also know how to value and pick stocks. No body wants to invest in stocks that will make no money for them. It is possible that two stocks have the same price but it may not have the same value. One of the most incredible investment tips that I have received till date is regarding how to value & pick stocks. Value of stocks is not only decided by its price but also on lot of other contributing factors of companies balance sheet like turnover, net profit margin, product, brand name, management. Another important factor outside balance sheet is market capitalization of a stock. Companies with a big market capitalization will generally means less risk for shareholders, as small buying or selling will not affect the market price a lot. People who just look at market price of stock are found regretting their investment tips /decisions and making false rumors that stocks market investment is very risky. Actually stock market is never risky, it the bad decision of the investor that makes it risky. Do not take investment tips of an outsider; develop your own skills to value stocks.

The above three steps are the most basic investment tips on stock market investment. If this concept is followed in totality, it is bound to give the investor substantial returns in long run.

In this section I will also give you simple investment tips that are fundamental to all types of investment that will let you sleep easily after having invested. It will give you peace of mind and maximize your profit.

Investment tip (1)

Be prepared to loose everything you have invested

Always assume the risk of partial or total loss of invested capital. Total loss of capital is possible in case the agencies stop paying interest, the agencies disappear overnight without any explanation or the agency lose all or part of their capital because of bad decisions. This is the reason why I say be prepared for the worst case scenario. Loss in investment shall not affect your survival and standard of living.

Investment tip (2)

Diversify your investment by investing in top companies

Diversify your capital by investing in the best investment options available at that moment of time. This will minimize the risk of partial or total loss of capital. It is easy to understand that the probability of losing all capital invested is less if capital is distributed in a number of investment options as compared to the capital invested in only one option.

Investment tip (3)

Recover their initial investment as soon as possible

This is my favorite investment tip of all. Let us take a small example to understand this, suppose you have invested $500 in an investment option say shares. After investing $500 wait till you to make $500 prior to reinvesting again. Once you have recover your principal amount of $500, you draw the principal amount and invest this is a less risky investment option like a bank deposit etc. Then you can invest the balance portion ($500) that was earned as interest on higher interest generating option (risky). Remember that you can take more risk on this money as you did not make any personal effort generate this fund. This way you will continue generating interest and your bank deposit will continue to increase months after months. If you consider the investment tip two as discussed above, where we have discussed the need of diversification of investment, you will know that by diversification will minimize the risk of loosing principal. But on the other hand is also reduces the speed of multiplication of money. So diversification rule is like a double sided sword. But careful diversification will surely multiply your capital faster.

Investment tip (4)

Do not always sell on bad days
Do not always be swayed by fear of losing capital. Let investment opportunities do their job and do not worry on day to day basis by seeing the indices fluctuating. Nor be swayed by greed to make money at a rate higher than the reasonable benchmarks. Avoid massive reinvestment prior to full recovery of its initial capital in lust of making high money.

Conclusion

Keep in mind the investment advice set out above. Never invest capital required for your survival. Invest only that money that you can afford to lose completely.

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