The world of investing is not simple. There are many pitfalls and traps that can destroy an investor’s portfolio instantly or over time if you invest based on emotion. Still, if you want to save for a rainy day, it will be hard to do without investing in the stock market.
More wealth has been created in the stock market since it bottomed in March 2009 than in any other eight-year period. The only way to have benefited from those great gains was to be in the market. Yet, even this expansion of more than eight years will not last forever, and investors could get burned.
If the fear of losing money is preventing some people from saving and investing, keeping in mind a few basic points could help prevent significant losses and will keep you from losing sleep.
You have to start with a goal or plan. Before looking at the many instruments available for investing — from stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more — new investors should have a plan and learn how to invest with your head and not your heart.
It is also important to understand how to minimize risk. For example, diversification helps soften the blow if markets turn bearish. And avoiding timing the market — no matter how tempting — is also the safer option
These are lessons and strategies that can help investors from losing their head and shirt.