How Do You Know If You’re Cut Out to Be an Investor?

You probably heard of people making money from the share market in Australia, investing in stocks to earn a profit, and building a healthy retirement basket. If you’re interested in doing the same, there are pre-investment checks you need to do. You should know that investors are built differently, and they have attributes that enable them to make wise investment decisions and overcome risks. 

What is your personal financial situation?

Before you invest in any asset, it’s important to take an honest look at your current financial situation and what financial roadmap it presents.

• Check if you can afford to invest based on your income and expenses. Experts highly recommend that you only invest what you can afford to lose and never invest money you borrowed. 
• Figure out the level of risk you can tolerate, preferably with the help of a financial advisor or professional. Your risk profile could be one of these: very conservative, conservative, balanced, growth investor, or aggressive growth investor.
• Consider your knowledge of investing, money management, and the asset class you want to invest in. The more you know, the less likely you’ll fear stepping into the investment world. 

How much investment risk can you tolerate?

If you only see the big houses and fancy cars from trading and investing ads, you’re missing the reality. Because the very fact that your investment income is taxed tells you a lot about the behind the scenes that people rarely talk about. 

• Truth: all investments, from stocks to gold, come with a certain level of risk, which can go higher or lower, depending on various circumstances. 
• Volatility and sudden upswings and downswings in some markets could mean major losses. Investing in such markets will require skills and vigilance in analysing data and reacting the right way. 
• More often, the higher the risk, the greater the returns, but the outcome still depends on whether you aim for long-term or short-term financial goals. 

You’re likely to earn more if you implement a buy-and-hold strategy in riskier assets like stocks, for example. Most successful retirees have a long-term perspective on investing. If you prefer not to wait that long, investing in cash equivalents will turn a profit in a short period.

What do you know about diversification?

A good way to protect your investment portfolio is to diversify, adding a mix of investments that help spread the risks across asset classes. 

• Invest in asset categories that move up and down in different market conditions. History showed that bonds, cash, and stocks have not experienced losses and gains at the same time, making them good vehicles for investing. 
• Investing in more than one asset helps reduce risk from one category while earning returns from another. This gives your portfolio the ability to counteract losses if one market goes down. 

Can you skip the risky assets altogether? Staying safe often means you won’t earn enough returns to meet your goals. It’s important to include enough risk in your portfolio to stay profitable, especially if you want to maintain a long-term perspective. 

These are just a few questions you need to ask before you start your journey as an investor. The more self-aware you are of your financial capacity, risk tolerance, and investment knowledge, the more likely you’ll succeed. If you want to go for stock investing, get a clear view of the market using Stock Doctor’s complete suite of investment tools.