Pitfalls
and Strategies for a New Investor
Knowing what strategies to use and avoiding
pitfalls for a new investor does not need to be difficult. The most important
thing to remember is to research thoroughly each and every investment before
committing your funds.
By doing your homework on the investments you
choose, many of the pitfalls made by a new investor can be avoided. Before
doing your homework however, you must first be clear in your mind on your goals
and what you are investing for.
Most people invest their money for capital
appreciation, although other people may have additional reasons to invest such
as their tax situation. Long-term financial security is another principal
reason for investing.
Once you have determined your investment goals and
the time frame you plan to achieve these goals in, you are now ready to
evaluate the amount of risk you plan to assume for your investments. Risk and
reward go together, the more risk involved in an investment, the more the potential
reward.
The risk element will have you either buying
interest bearing U.S. T-bonds, which will give you a minimal return on your
money, but is a safe investment, or, purchasing penny stocks with the
possibility of losing your entire investment. Somewhere in the middle is how
you should plan to invest.
Finally, investment strategy can be developed using
either a fundamental perspective —analyzing using events affecting the market —
or a technical perspective, evaluating levels of supply and demand using
historical price data. Most professional investors use a combination of the two
methods, using technical analysis and combining their fundamental research to
make a decision on the strategy they will use to invest.