Everyone is different and there’s definitely more than one way to be smart when it comes to trading securities on your own. That being said, below are some basic do’s and don’ts we believe any savvy trader should abide by.
- Educate yourself
Investing is defined as the act of committing money or capital to an endeavor for future rewards or additional income. Taking the time to study a company, its financial results, its management, as well as any other non-financial information found online, can help you evaluate the company and decide whether to invest your money or not. You have to keep in mind that each security you trade should be integrated with your overall portfolio strategy and each new stock you buy can modify the risk/return ratio of your portfolio.
- Diversify your portfolio
A diversified portfolio of companies with different core activities, from different sectors and even different localization, allows you to spread your risk and minimize market volatility. As we like to say, don’t put all your eggs in one basket! 🥚
- Be aware of your financial goals and your risk tolerance
Knowing your desired time horizon to achieve your goals can help you select securities with a risk/return compatible with your risk tolerance. Are you looking to make some extra cash for an upcoming trip or saving for retirement? The level of risk you are willing to take with your portfolio should vary depending on your end goal. If you have a long timeline and a high-risk tolerance, you might be willing to take more risks with your portfolio. However, if your timeline is quite short (let’s say, less than a year) you might want to be a bit more conservative when picking securities.
- Don’t let your emotions take the lead
Your money is subject to ups and downs when traded on the stock markets and we all know that emotions can affect our judgement. This is why it is important to step back from time to time and to invest only when you’re certain that the investment is aligned with your overall investment strategy.
- Don’t take unnecessary risks
You should always keep in mind that more returns also mean more risks. You should only take high risks if you have a risk/reward ratio balance. It is as important to protect your money as it is to earn high returns.