8 Ways to Stay Safe While Investing
August 9, 2023 (Investorideas.com Newswire) When investing, you're putting your money at risk. Not only are you making a risky investment without a guarantee that it will pay off, but you're also registering a new account and transferring your funds via a third-party platform. In other words, you're betting against the market, against hackers, and even against time. Here are the top eight tips to help you stay safe against these odds.
1. Set goals
Setting a goal is the only way to know if you've succeeded at something. If the goal is realistic, you'll know whether you've reached it or not.
Once you have a goal, you want to develop an investment plan. If you already have a goal, making an investment plan will be like solving a newspaper labyrinth by starting at the exit and tracing the path backward.
You might want to research investment goals and ask a professional for advice.
Most importantly, you need to:
- Stay disciplined
- Monitor progress
- Adjust as needed
These three principles are the only things that will keep you on the track.
2. Set stop orders
The simplest way to take the component of randomness and gambling-like behavior from your trades is to automate decision-making through stop orders. The biggest problem with decision-making is that it's different under pressure.
You know how, after the fight, you know exactly what you should have said and what you intend to say the next time the situation is brought up? Well, imagine if you can execute this automatically without having to muster the courage or mess up your statement. This is what stop orders are in a financial sense.
If you set stop loss at 1-2% and take profit at 6-7%, you can be a successful investor with as little as 25-30% of successful trades. This rigs the system in your favor and makes it a lot easier to handle all your investments.
Most platforms have stop orders, and learning how to set this up is probably easier than expected.
3. Pick the right platform
Choosing the right brokerage platform is crucial when investing. The thing is that the differences between these platforms vary far more than you would expect them to. The problem is that, without a point of reference, you won't be able to tell a good platform from a bad one.
First of all, the fees and costs may vary greatly. We discuss minimal deposits, expense ratios, trading commissions, and maintenance fees.
If you've never done this before, you also want a platform that has a clean, simple UI and is quite easy to learn. After all, since you'll spend so much time staring at the screen, you might also want something easy to use.
Since a modern trader is always on the run, you would ideally look for a platform that has a great mobile app. You would be surprised how big of a difference in responsiveness and quality of life features are between different (competing) platforms.
4. Keep your accounts safe
Picking the right platforms is just the tip of the iceberg. You also want to keep your profiles on these platforms safe. Namely, you need to start with a strong and unique platform. Ideally, you should use a password manager, so look up some expert reviews and see which of these tools perform the best.
You must avoid doing business from unsecured networks. Sure, many people trade from their mobile devices, but using public Wi-Fi to trade valuable assets is just outright reckless.
If you're already logged into these apps (as you probably are), avoid giving them to someone else to use or "just make a call." Also, don't use another person's device because you never know if they have a keylogger installed.
Lastly, no method can protect you if you're reckless and don't watch out for what you're saying. People listen to what you say even when they don't appear so, and you need to watch your mouth before you blurt out your password in the wrong crowd.
5. Understand risk management
Risk management is a concept that not enough people use either in their personal lives or in investing. The thing is that it consists of several stages:
- Risk identification
- Risk assessment
- Risk mitigation
This last part is especially interesting since it prepares you for both your decision's positive and negative aspects.
Also, in investment, there's always a risk, which means that you have two options in front of you:
- Risk acceptance
- Risk avoidance
Which of the two you should go with mostly depends on the potential payoff. Investing $100 with a 1% chance to earn $150 is a horrible idea, but investing $100 with a 1% chance to win a million is a great deal. You need to measure the risk against the potential payoff and use this to make decisions. All will be fine if you invest what you can afford to lose.
6. Diversify your portfolio
The only way for your investments to stay safe is to diversify them. What does diversifying a portfolio mean? It means reducing the risk by splitting your investment funds and buying different kinds of assets, ideally with low correlation.
Just buying a different kind of the same asset is not enough. After all, it's likely that when the cost of one precious metal goes down, all of them will. If the market crashes, almost all stocks will go down.
The thing is that asset types that have a low correlation usually act opposite each other. For instance, when the stocks go down, commodities may go up. This will put you in a position where your gains on one end outweigh your losses on the other.
Despite the other perks, diversifying your portfolio may buy you peace of mind. Knowing that your investments are safe has an intrinsic value on its own.
7. Avoid getting rich quick schemes
If something sounds too good to be true, that's probably because it is. Previously, we've talked about diversification and keeping your funds safe. We've already discussed how you can remain profitable with just 25% successful trades.
The problem is that popular culture and media are filled with stories of people who made banks overnight. Is this the case? Of course… for some people. Due to survivorship bias, you only hear these success stories, but what about thousands of people who lost it all? Even these are extreme cases that you hear about, but what about the 90% of people who lost some money or lost a lot?
Another reason why some people overinvest is due to positivity bias. It's in human nature to believe that good things are more likely to happen than bad ones. Is there any basis for these claims? Of course not. However, it's the way that the human brain works.
8. Trust professionals
Many people put their assets in the hands of professional investors and then try to stir the ship themselves. This is a massive problem that's hard to overcome.
People see an asset's value falling and rush to sell before it's down too much. They see an asset rising and buy to profit before the peak. The problem is that if you follow the market, you'll always sell low and buy high.
You might want to consider copy trading if you have to follow someone.
The safety of your funds and assets is your responsibility
Sure, each market and platform has a list of regulations to comply with to keep running. However, you should always treat your assets as your responsibility. This means that you alone are in charge of protecting them. Remember that this involves both decision-making and technical measures.
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