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The million dollar question about the stock market...
The threshold question before you
decide to invest in the stock market is whether you are an investor.
For some people the stock market may not be suited to their
personality. This article addresses some of the qualities an
investor should have in order to make a reasonable return in the
stock market.
Sure, there are folk tales you may hear
about the guy who bought XYZ Company stock for $5 and sold it 60
days later for $50 a share. This scenario probably has happened ,
but it is not the reality of being an investor. The following points
should be considered when you are considering becoming an investor.
Are you self-disciplined in your
thinking?
The first step anyone must take into
account is their own personality. Are you objectively a person who
is organized in your thinking? Do you know how much money you have
to invest? Do you know how to set objectives in your finances? Have
you set goals for savings and followed through on those objectives?
An investor has to have a clear set of objectives in their choice of
investments. Is the amount of money you intend to invest a one time
wind fall? Are you able to set aside a certain amount of money each
month to investing that is disposable income?
In effect what you will be doing is
moving some of your pass book savings to an investment. Patterns
development in peoples lives. Are you able to transfer your savings
pattern to include a regular investment in the stock market? If you
are currently earning a small percentage on your pass book savings
account what rate of return would you be satisfied in receiving? The
key to investing is to know your expenses and income and decide how
much money is disposable income. It is this excess that will be your
investment dollars.
Are you able to set goals and listen to
good advise?
Once you have determined that investing
may be a possible avenue for you to consider the next step is setting
goals. A goal is the objective of your investment. It could be for
retirement, a vacation home, a rainy day fund or a new boat.
Whatever your is determines the type of investing you will be looking
for in your research. If it is a long term goal like retirement you
may seek a tax exempt municipal bond fund or a mutual fund with
certain characteristics. If you want liquidity like a pass book
savings account where you can draw money as you need it there are
some investments that may fit. The important aspect of this step is
to know your objectives and then draw up a budget or a plan.
All of the major fund companies have
managers and consultants. Are you able to set forth your objectives
and ask for advice in picking out a fund that will fit your needs?
This does not mean you need to sign up for the first consultant who
takes your call. It means can you listen to advice and make a
decision on various alternatives offered to you. After you have
gathered all the information you believe is necessary for your
decision can you apply your personal goals with the information
presented and make a final decision?
This may seem like an odd inquiry, can
you make a final decision? Unfortunately, some people will feel
quite comfortable going to a car show room and purchase a $30,000
automobile. The color, impression, and internal motivators. But when
it comes to investing, the buy is not as dazzling. It takes
consideration to commit $30,000 to an investment in paper form even
though you may be purchasing stock in the flashy car company.
Can You Let Go?
The final and perhaps most important
aspect of deciding if you are a stock investor is, YOU. After you
have gone through all of the self analysis, goals, research and
advice of others and made your final decision the next step is
critical. Do you have the personality to allow your investment to
take its course? Can you sleep at night? Unless you are a day trader
who plays the upside and downside of the stock market and I would not
recommend this to anyone starting out. You have to be able to roll
with the punches. Trust your instincts and review your investment on
a monthly or quarterly basis. If you buy individual stocks, place a
limit order on the account. A limit order allows your broker or
on-line account to sell if the price goes down.
The mutual fund investment works
differently that buying individual stocks. If you are satisfied that
your choice of a fund met all of your criteria for investing let it
alone and review it only periodically. If your mutual fund for any
reason meets with unexpected long term problems you can change funds.
I would review the fund on a quarterly basis and discuss this with
the fund account manager or representative.
This is the investor personality that
you need to have in order to have a lifetime of success in the stock
market. If you have it, it works. If you don't, try another type of
investment.
October 2007
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