Getting Started with Investing

There are many ways to get rich, other than securing a high paying job or doing well in operating businesses, is investing. Well, many people do not go into investing because most of the vast majority of people are low risk takers. In order to be successful in investing like Warran Buffet or George Soros, you more or less need to possess some degree of risk tolerance.

As time goes by, with the introduction of many formulated investment instruments or vehicles, it is no longer limited to stocks, counters, bonds and warrants anymore. There are mutual funds or unit trust funds that you help you diversify your risk by expanding exposures in variation of equities in regions, sectors or commodities market. Well, this may appeared to be dismaying to most people who are not au-fait with investment mechanics.

What do you need to know before you start to invest? There are actually three points you need to equip yourself with before you invest.

1. Market sentiments – First and foremost, by far the most important part of investing is the understanding of market sentiments. Not only stocks even mutual funds are correlated with global market sentiments. Issues like sub prime woes will affect the stock price greatly as it will cause a dent in the confidence of investors. However, on the other hand, if fuel prices rocketed, you need to understand that energy and fuel listed companies will be pushed up significantly while the other counters related to transport would fall. While the equity price plunged, bonds will rise significantly as investor moved their profit to a secured zones. You will also need to know what is “Capricorn effect” where there is usually fierce buying during December period, which will put investors into buying mood.

2. Market strength and weakness – If there is a great plunge, a start-up investor needs to bear in mind, resisting psychological decision like panic selling. Market movement traditionally move up and down. Put it simply what goes up will comes down and vice versa. When caught in a losing position, do take sector and market movement before coming up with a decision to dump. Well, in normal circumstances excluding company woes, panic selling usually will followed by a recovery.

3. Market mechanics – You will need to understand taking counter position will incur certain cost like brokerage fees and so on. Apart from “buy low sell high”, there is another form of trading usually known as ‘short sell’. By short selling, you are selling the shares that you borrowed from your broking firm and you are required to cover your position on the same day unless you are using a CFD account in general.

With such knowledge in mind, you should be able to trade equities and mutual funds confidently to give you a good head start. Although it is always good to equip yourself with Technical Analysis, but there are many people with the above general understanding are already doing very well. It’s your choice.