RULES TO KNOW BEFORE INVESTING IN STOCK
Putting your money on the stock market is like buying and selling financial products on the stock markets. It is important for an individual to determine their investor profile and financial goals before investing. He must determine the degree of risk he is willing to take with his financial investment and its duration.
Investing in the stock market means buying or selling securities on the financial markets. This investment makes it possible to:
• receive income: an individual may receive dividends that represent a portion of the company's profits if he buys shares. It may also receive bond coupons that represent an interest payment, bonds being loans made by investors to issuers.
• profit from capital gains: an investor profits if he sells more expensive a security than he bought it because of the evolution of the price of the security on the market.
1 - Invest savings that we do not need.
Given the risk involved, the individual must invest in the stock market only the portion of his savings that can happen and that, in case of loss, will not lower his standard of living. It is important that investors do not use the savings they may need for their daily life projects.
2 - Know Before Investing
It is important to learn about financial products before investing. It is a question of knowing on the one hand on the type of product (actions, obligations, derivatives), its mechanisms and the risks which it involves, and on the other hand on the issuer, whose financial health and the outlook will affect the price and risk of the securities he has issued.
Individuals may use a licensed professional who will provide advice that is appropriate to their situation and goals.
Investors who decide to choose the securities they invest on without assistance may also find general information about financial products from financial intermediaries and directly from the issuer of the securities. Issuers are required to report their financial information to the public on a regular basis: quarterly, half-yearly, annual, announcement in the event of a merger, etc. Information will be more complete, frequent and accessible on stocks that are listed on a regulated market. Conversely, non-regulated markets such as multilateral trading systems are less protective of investors.
It is also advisable to regularly monitor economic and stock market information via the financial press or the stock market websites.
3 - Define an investment strategy
It is advisable to define an investment strategy before investing. The simplest is to set a goal of gain and a floor of maximum loss, and this according to your investor profile.
It is also necessary to define an investment period that corresponds to an investment horizon.
4 - Diversify your portfolio
Portfolio diversification distributes the capital invested in a balanced way. Thus, the decline of a single value will have less impact on your entire portfolio.
It is important to determine the distribution of different investments between stocks, bonds, derivatives, etc. Investors can also allocate their portfolio to stocks from different economic sectors.
This diversification of the portfolio will be based on the risk profile of the investor.
5 - Monitor your portfolio regularly
Markets may experience large stock market fluctuations, which is why it is important to regularly monitor your portfolio, especially if the investor is positioned on leveraged products that require special vigilance.
6 - Know how to take profits and cut off losing positions
The investor must define what are his objectives of gains and losses before investing in the stock market. So you have to be rigorous if the earnings targets are met and think about taking profits.
Similarly, if the threshold of losses acceptable to the investor set in advance is reached, you must know how to take these losses. It should be kept in mind that some investments may result in a total loss of invested capital hence the importance of meeting the threshold.
Even if it remains difficult, cutting its losing positions remains an effective way to avoid even greater losses and maintain control over its investments.
Risks and precautions
Risks are associated with all forms of investments. It is advisable to be well informed and to know how the fina products work.