Before investing

To be a successful investor, before you start you need to set your goals and strategy. Let's summarize some important areas to cover:

• Goals:
  
  Everyone wants to make money, yes that's clear 😆 . Are you building something for your retirement? Want to buy something? Want to have extra money for a trip? For your kids? etc...
  
  These are important questions to go through and answer yourself. It might be beneficial to take a step back and answer why are you investing in the first place.
  
  Once you identify your goal and depending on the timeline you have you can then go about building your portfolio. Some people like to have a growth, balanced, income-generating, or hybrid portfolio.
  
  Growth stocks usually have high P/E multiples (go to #definitions to understand more on P/E), while income stocks usually have higher dividends payout (go to #definitions to understand more on Dividends)
  
  
• Timeline:
  
  This is important depending on your age and your goals the time horizon you have can and should affect your investment strategy or portfolio. For example, if you are at retirement age and are looking for steady income then your portfolio or stocks you choose might be focused on high dividend payouts and less risky stocks. Another example, if you are still earlier in your career and want to grow your portfolio aggressively then you might choose growth stocks that have a much higher risk.
  
  
• Managing your finances:
  
  It is really important and a lot of the time is overlooked but you need to manage your finances. If you identify your goals and identify the amount of money you can invest, it's important to remember why did you invest. If you are a value investor and are looking for long-term results then timing the market will be very difficult and short-term market cycles are normal. Remember time in the market beats timing the market! Selling your stocks for short-term financing and miss management of your finances will often result in poor performance in equity markets. Manage your finances well, remember your investment goals, and why you are in it in the first place 🚀
  
  
• Understanding the risks associated with equity investing:
  
  There are a lot of risks associated with investing in equity markets. Some but not all of the risks are:
  
  

• Market risk: usually market risk is associated with the economy, economic development, or events that affect the entire market. The main type of market risks is; equity risk, currency risk, and interest rate risk.

• Equity risk - this applies to the investment in stocks or shares. This risk is when the stock/share price drops.
• Currency risk - is usually associated when investing in foreign markets and when there is a change in the exchange rate.
• Interest rate risk - this risk is associated with bonds, if the interest rate goes up, usually the value of bonds will decline

• Liquidity risk: is when you are unable to sell your stocks/investments at a fair price and get your money out when you want to.
• Concentration risk: the risk in having your investments in 1 or 2 companies. Usually, diversification (go to #definitions to understand more on diversification) reduces this risk.
• Horizon risk: the risk of having to sell your stocks/investments because of an unforeseen event, for example losing a job and having to sell because you need the money. If it's a bear market you might sell at a loss.