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KEY CONSIDERATIONS WHEN INVESTING IN STOCKS

Let's jump right in!

SETTING AN INVESTMENT AIM

DECIDING HOW MUCH TO INVEST

UNDERSTANDING THE COMPANIES FROM WHO YOU ARE PURCHASING STOCKS

DIVERSIFYING YOUR INVESTMENTS TO REDUCE RISK

 
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STEP 1: SETTING AN INVESTMENT AIM

What would you like to use your investment gains for?

Set specific goals with specific timelines- having specific goals allows you to have purpose and measure success. 


E.g.,  A long-term goal is "I am 17 years old and want to retire by age 60. At age 40, I will have built my nest egg to $2M. At age 50, it will be $6M. At retirement, it will be $10M.”


A short-term goal defines the returns you would like to receive in the very near future. Let's say, you would like to go on a vacation in a few months, so you invest $1000 and in 3 months' time it may potentially grow to $8000.

 
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STEP 2: DECIDING HOW MUCH YOU SHOULD INVEST?

So before you decide how much you should invest in stocks, you should analyze your financial situation. 

Ask yourself some questions such as:

1. How much risk am I prepared to take?

2. Should I invest in low-risk stocks or high-risk stocks?

3. How much can I afford to lose if my investments do not do well?

4. Have I set my investment goals?

The above represents some of the key questions but the list is by no means exhaustive.


  

 
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STEP 3: UNDERSTAND THE COMPANIES IN WHICH YOU ARE PURCHASING STOCKS

Research and keep up-to-date on the Companies you want to invest in.  Ideally, you’re investing in stocks when share prices are low and selling stocks when the share prices have increased.

Some of the company's characteristics to focus on are: 

  • Its' earnings trends

  • How realistic its' products & services are and its potential revenue growth?

  • How reliable the company is compared to its competition?

  • Do you have confidence in the products &  services sold and offered by this company? 

For example:

I would invest in Netflix because, during the pandemic, a variety of entertainment options had been closed leaving individuals little choice but to entertain themselves at home watching movies and gaming.

 
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STEP 4: DIVERSIFY YOUR INVESTMENTS IN THE STOCK MARKET TO REDUCE RISK.

Investment performance is unpredictable and although great returns are possible, investors can also sustain declines in the value of their stocks. It is therefore critically important to diversify your portfolio into different industries.

Diversification is an investment strategy that reduces risk or volatility of your portfolio to achieve stable returns. As the saying goes "don't put all of your eggs in one basket".