While investments can increase the amount of money you earn, they also incur risk. You need to be smart about investing so that you don’t incur more debt. Financial literacy is not something that comes naturally. It requires study and discipline to get good at understanding numbers.
Assuming you have a fixed income and hope to increase how much you earn through investments, how do you reduce the risk?
Here are seven suggestions:
- Find a good source of information.
If you plan to invest in options, stocks, commodities, or Forex, seek out quality information from sources like Simpler Trading. The better the quality of training you can get, the higher your chances of success. While knowledge is power in many areas of life, it is particularly true when it comes to investments. You can earn a tremendous amount of money when you know what you are doing.
- Carefully study the information.
While many people buy courses and tutorials, few follow through on learning the information thoroughly.
While they have good intentions, they never get around to completing the course. Life gets in the way. They get distracted. When it comes to increasing your knowledge and skills to increase your income, you can’t afford to get distracted.
You have to have a dedicated time when you sit down and study the materials, talk to course instructors, and get on group calls.
It’s also advisable to just pick one course of study at a time rather than overwhelming yourself with a wide variety of courses that teach different specialized skills. Be a sequential learner to acquire in-depth knowledge.
- Don’t invest for the thrill of it.
The possibility of a financial windfall with investments is exciting. You can make more in a day than you can make in a month when you use a highly-leveraged investment vehicle.
However, there is also the opposite alternative: you could lose everything that you worked so hard to earn at your job almost overnight.
This huge seesaw can make investing appear similar to gambling. It offers the same ups and downs, the same ecstasy of victory and agony of defeat. However, this similarity is superficial. With gambling you have no control over the outcome. When you throw the dice, you have no idea what numbers will show up. With investing, you can do a considerable amount of market research, study of technical methods of reading and analyzing financial market charts. You have some control over the outcome.
- Don’t invest your grocery money.
The only time you should invest is when you have saved up some money that you can afford to lose. If you invest with money that you can’t afford to lose, you face two major problems:
One, you can be in dire trouble if your investment fails.
Two, you don’t have a clear head when you invest. Since you’re nervous, you might make some mistakes that you would never have made if you were in a calm state of mind.
- Don’t romanticize investments.
When you get into investing, it’s easy to get caught up in hype. Most of the sales brochures you get will play on your emotions of living the glamorous lifestyle.
If you’re not careful, you’ll be bragging to your family and friends about the cars you’re going to buy, the home you’re going to live in, the yachts you’re going to sail, and the vacations you’re going to go on.
The danger with letting your imagination get away with you is that you will make larger investments than you can afford in the hope to get a bigger payoff. In other words, you won’t be as rational as you need to be to be a shrewd investor
- Get good at money management.
The game of money involves much more than earning and spending. You have to understand savings, budgeting, insurance, credit cards, contribution, taxation and many other things to get good at financial management.
If you don’t know how to manage your current household income, a large influx of profits will not make you any wiser. So while you are acquiring knowledge about how to invest, you should also spend some time learning how to be a good steward of money.
- Brush up on your math.
It’s probably been a long time since you did math in school, and while there is not much math involved in investments and you can do all your math operations with a calculator, you still need to have a basic understanding of math.
Yes, you won’t need to study Euclidean geometry, but an understanding of ratios, percentages, and probabilities will help you understand the market better. It’s also useful to understand variables, expressions, and equations. In other words, you need understand the importance of basic math in business.
Understanding math is more than grasping mathematical principles; it also involves a quantitative way thinking. Our usual way of thinking—qualitative thinking—is subjective, vague, and open to interpretation. By comparison, quantitative thinking is analytical and precise.
If you happen to be someone who lost track of what was happening in math as you went through school or who has forgotten much of what you once did well, it’s easy to find some courses on math to help you get up to speed.
Patience and Perseverance
Learning how to be a good investor requires patience and perseverance. You will have good days and bad days and through it all you have to keep a level head.