One of the big challenges an investor faces on a daily basis is market risk.
Working hard to satisfy your investment goals while at the same time limiting your risk and exposure to volatility takes a solid strategy, reliable information, and a patience like no other.
Sure, we've all heard stories of the home run hiring investor who laid his money down and made a "killing" in a stock.
These are the kinds of tales that grab the headlines and attract the interest of the "fast buck players."
"Steady as she goes" would be a more realistic view of how to invest. It is difficult to just wait for an investment to climb in value, but without patience and the fortitude to keep a long-term mindset, you're probably going to miss out on a solid move.
Using what could be called a butterfly approach and jumping from one hot stock tip to another can be the riskiest investment play of all.
Being patient is not enough though. If what you are investing in is oozing with risk, patience may not be the key to success. You devote your patience to solid investments and those with limited risk.
If you are an investor or contemplating investing in the various financial markets and instruments available, you must get into the flow of information.
Catching a thirty second or two minute report stating a company making an innovative new product that is going to revolutionize the industry should not be considered a call to action.
If you do not understand what you're being told to invest in … do not invest. Not having an understanding of what your money is invested in is comparable to sitting down at a high-stakes poker game without understanding the marks on the cards.
If you do not have basic investment knowledge to guide your decisions, your chances of making the right choices are limited.
It's simple; have a basic knowledge of how the markets work; have an understanding of what it is that you are interested in investing your money in; and most importantly, understand the upside and downside scenarios, in other words, what are the risks and more specifically the risk of losing your entire investment.
If you feel that the risk of putting all your investment dollars in the stock markets in the US is too great, perhaps diversifying into stocks from other countries is worth examining.
The mindset for many is that if the stock markets at home are suffering, there may be markets abroad that offer opportunity, because bad economic news on one front may be great news in another part of the world.
A quick example of such news would be the trade figures. If the US is witnessing a rise in imports month after month, you have to ask yourself; where are we importing from and what are we importing?
This could have the clue to invest in a company that consistently exports to the United States and the amount of its exports (in dollars) keeps rising.
On a more basic level; If a football team is having a terrible season, there is probably a team that is having a great season.
Think of it as; when two teams compete someone wins and in world economies, someone's bad economic news typically translates to someone else's fortune.
When you read a headline or story about some bad economic figures … ask yourself, "Who is on the other side of this?"
Who did well that directed in the US doing poorly? If the US did great, who suffered? Is this a trend? Is the company or industry showing real value in their stock price now?
Could this be just a fluke and there's a buying opportunity?
It pays to look past the headline and the story and into what made the story. Everybody hears news, but going the extra step and finding out what caused the news will give you better market insight.
If you think that you want to diversify in the international markets, you have to take into consideration what you stand to gain versus what you could possibly lose.
Currency fluctuation can boost a return on an investment. If the currency of a country you invest in increases against the dollar, when it comes time to sell, you'll get more dollars.
However, that can also work against you; the dollar increases against the currency of the country of the company you have invested in … and you'll get back fewer dollars.
Obviously, you want your stock to rise and a sweetener is getting a dividend (if it pays one) in the meanime. Keep in mind, markets rise and fall and companies announce separation suspensions, eliminations, or reductions.
This can happen in any of the world markets, not just at home.
Before you get too excited about international investment, you should understand that the US is not the only country where interest rates rise and fall.
The currency issue I mentioned, but worth mentioning again, currency fluctuations can hurt you.
In the US, you are fortunately because companies that list on the exchanges have to reveal a lot of information about themselves before they can be listed.
The rules are not the same all over the world, so investigate on your own, rather than trusting only what is offered to the public.
This would be of particular interest when it comes to the accounting methods of the companies and how they compute corporate and individual investor taxes.
Committing a portion of your investment dollars can be exciting and rewarding, but if you are not a savvy investor with a deep understanding of world markets, currency exchanges, tax laws, accounting, and company reporting practices, your personal investment risk will be very high .
I always suggest seeking professional advice when making any investment, be it; financial instruments, real estate, precious metals, or any of the other opportunities offered.
Take note, if you want to invest internationally there are alternatives to going directly to a foreign market and opening an account.
You may wish to investigate the various international mutual fund offerings, foreign companies that list directly on the US exchanges, or those that are offered through what are called American Depository Receipts.
The foreign markets always look inviting when our markets at home are showing some volatility, but with so many sectors in the US markets to choose from, it's not always smart to jump the fence into the yard with the grass that looks greener.
The more knowledgeable you are about investing, the better investor you will become. Multiple resources will provide varied opinions.
What one analyst loves, another analyst may dislike. Do your own research and do a lot of it, before jumping into the stock market because someone told you it's the thing to do.
"There are only two ways that you make money; you work and your money works … make your money sweat." -Lazz Laszlo