There’s a sense of uncertainty among newbie investors who have just entered the market either through equity funds or direct stock investing. This may be due to how the situation was in 2013, where the first five months were filled with an amazing uptrend, but was followed by a jaw-dropping downtrend. From a point of view of a financial consultant, it’s painful for me to see newbie investors get discouraged and lose money when they’ve only started investing. After all, when people lose money for the first time, they can lose heart and quit investing altogether.
I don’t want that to happen to you. My desire is for you to start 2014 strong and end it even stronger than where you started.
Entering the unknown
One of the scariest things that investors go through is the fear of the unknown, especially when the market is volatile as it was last year. Investors are concerned about the possibility of going through the same gut-wrenching loss as many experienced last year if they buy a stock again or top up in an equity fund.
While we cannot control the market, what we can control is our emotions. We may not know when foreign funds will come back to the Philippines, but we can manage our strategy on how we can manage risks.
Here are 5 tips on how to trade and invest in 2014:
- Re-evaluate your financial plan. You may have received an increase or a promotion last year. This is a good time to re-assess if you can put more into stocks or equity funds, or it may be a good time to check if you might be exposing yourself too much into equities and need to diversify further.
- Re-evaluate your risk tolerance. Sometimes people lose money not because they bought the wrong stock or got into the wrong equity fund; rather, because they got exposed too much into something they cannot tolerate. If you’ve had some sleepless nights or some arguments with your spouse due to the volatility of the market, then maybe it would be best to shift some of your funds to bonds or bond funds. It will still make you earn money over the long term without the everyday volatility.
- Invest with the end in mind. This simple phrase is what I always try to impart to my clients. As an investor, before buying a stock or entering into an equity fund, it would be good to plan each trade – meaning, you come in with a specific set of parameters that triggers you to buy and sell. The decision to put in money or take out money relies on these parameters. This will allow you to be very mechanical in your investing and will prevent you from being kept up all night by the volatility of the market and the panic that it brings.
- Put a premium on knowledge and research. The more you study, the wiser investment decisions you will make, and the greater your conviction towards your investment will be. You’ll be confident about where you’re putting your money in, and such state is always a good one to be in. This will prevent you from losing money because you no longer need to listen to the noise, rumors, and hype.
- Use 2014 as a year to position. The market dropped from a high of 7,400 to a low of 5,738 last year. This year could be a good chance for you to buy stocks relatively cheaper or get into equity funds while their NAVPS are relatively lower. The fundamentals of our country are amazing and it’s only a matter of time before foreign funds come back in and bring our markets higher again. The market is poised to move higher in the next few years, and 2014 may be the year for you to position early and accumulate more investments.
It is my desire to provide you with the proper foundation in investing so you may walk in financial freedom. I do hope this aids you towards that goal.
Marvin Germo is the author of the best selling book Stock Smarts: Stock Investing Made Easy, a financial planner and stock market trader, columnist for Rappler, Business Mirror & Moneysense Magazine and owns the website at http://www.marvingermo.com.