Don’t get greedy

A wise man once said of stock investments that you have not made of lost anything until you have sold the stock. This is one mistake that many investors (both amateur and professional) make. In order to avoid the same mistake you need to understand the difference between realise and unrealised profit.

If you bought $1,000 of stock in Company X 6 months ago and since then the stock price has doubled your unrealised profit is $1,000. The common mistake is to think “ooh this is great, i’ll just hold the stock for another 6 months and make another $2,000. Big mistake. Instead you should consider realising some of your profit by selling some stock. Before you do try to reassess the stock again and treat it as if it were a new investment. If you still believe the stock offers value then maybe hold some or all of your position.

Ignore you emotions

Another great thing to do if you want to learn to invest money successfully is to ignore your emotions. Many poor investments (and friendships lost) have been made because someone has been approached by a friend with an investment proposal, maybe in their business or a friend of a friends venture. If you have these kind of personal or emotional links to an investment you may find it much harder to exit the investment if things don’t go as expected. Also on the other hand you may find it harder to walk away and take a profit.

Don’t run before you can walk

The key to successfully learning to invest your money is to make it a gradual process. If you go from a base of zero knowledge to try to start spread betting on the commodities markets you are doomed to fail. Read around the subjects and areas of investments you are interested in and ensure you fully understand each market you will enter before investing your hard earned money!

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It is true that many investors are not rich. The main reason for this is just jumping right in and assuming no skills are required. This is far from the truth as steady profits from investing usually come to those with the right knowledge. There will always be risk with investing but there is more risk if you invest without learning first.

You not only have to learn the ropes so to speak but you should also know why you are investing in the first place. You cant just say “I want to make more money” and then jump into something like penny stocks. Thats an empty plan and a recipe for disaster. Really sit down and think about you goals, dreams, and aspirations. Write all this down on paper and decide how you can achieve these things through different types of investment whether short-term aggressive or long-term conservative.

Lets talk about realistic expectations. So many people go into investing with the unrealistic expectation that they will become rich in a day or a week. Im sure you have heard stories of this actually happening but remember this not the norm. Thats lottery hopes. Real money will come and can come quickly if invested correctly. If you’re only interested in making money quickly and are willing to accept the risks associated with such investments then you should become as smart as possible on those types of investments before jumping in.

If determining your investment goals seems like a daunting task then you may want to consider speaking with a financial planner. Thats what they are there for and they can save you a lot of time and effort. You can expect realistic goals from a financial planner for they have nothing to gain by misleading you.

Take you time and remember that there is more to investing than just giving someone your money and hoping to win big. A big part of investing is first investing in knowledge that will pay dividends over and over again throughout the years as you invest.

Be careful and be safe with your own money as no one else will care about it as much as you. Diversify and make methodical decisions that will maneuver you in a position of profits. You will see this is easier than it seems as you begin. Just stick to the basics of investing never veering for investing fads. Good luck and happy investing.

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Being familiar and sticking to your own style of investing will help you make more methodical choices instead of taking unnecessary and uncalculated risks. It really boils down to three different styles of investing and those styles describe your risk tolerance. The three investment styles are conservative, moderate, and aggressive.

If your risk tolerance is low then you will probably be sticking around the conservative or moderate risk investments. If you don’t mind taking higher risks then you would be an aggressive investor investing in stocks such as penny stocks. Remember, it is also your financial goals that dictate what style of investing you fall into. Conservative investments are usually long-term investments with a return that accumulates over years rather than over night like some penny stocks.

Retirement goals can be associated with conservative and moderate risk investments. However, if you have a goal to buy a house or a car using investment gains then you’ll most likely be involved in more aggressive investments.

Those who fall in the conservative investment category usually want to maintain the money they initially invested. This means they’re usually happy and comfortable investing so long as the investment never dips below the money they initially invested. Common stocks and bonds are usually preferred by this type of investor. Also, using savings accounts or CD bank accounts can fall into the conservative style.

If you feel you are a moderate risk investor then you will probably invest half of your available funds into conservative investments for safety sake and then the other half in higher risks, higher return potential investments. This hybrid style sort of keeps you anchored while “playing” with higher risks.

At the other end of the spectrum we have aggressive investors. These investors will take risks that other investors are simply not willing to take. They invest higher amounts of money in riskier ventures in the hopes of achieving larger returns, either over time or in a short amount of time. Aggressive investors often have all or most of their investment funds tied up in the stock market. Investing mostly or solely in penny stocks can also be described as aggressive.

It is important to determine what style of investing you will use before taking uncalculated risks. Your style will be determined by your financial goals and your risk tolerance. No matter what type of investing you do, however, you should carefully research that investment. Never invest without having all of the facts!

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With the recent horribly tragic events of real estate and debt instrument investment experiences, some public information on risk management deserves attention. Position sizing deals with the portion of total asset exposed to risk/reward.

Putting it all on the line or “betting the ranch” tends to carry exceptionally high risks of ruin, since it leads to large losses as soon as the underlying event goes south. It would make more sense to allow many different “bets”, all with positive statistical expectancies, to occur at once. As the law of large numbers kicks in, a positive return will eventually follow. Luck determines the speed of it.

Quick example-

Basic trend following stock investment strategies carry approximately 33% winning rate on average. (Many still come out profitable after long strings of trades, because the average winners carry much larger size than the limited losing trades.) This basically implies that out of each 10 lowly correlated positions, one would expect 2-4 winners at best, but those home-run winners will bring all the money home.

To execute this and lower the risk of total loss, many professional traders commit (i.e. risk) 1-5% of capital per trade/investment unit. Strings of losing trades occur from time to time, and this scheme remains the only method of surviving them before the large winners ensue. The more probabilistic trials, the probability of the statistical edge kicking in becomes much larger.

All said and done, you want to run the investment like a casino, where the edge sits on your side. Luck determines whether an individual investment unit ends profitably or negatively. Study and gain that positive expectancy. Plan the position sizes meticulously. The money will follow.

Did you know that you could use money from a self-directed IRA account to invest in tax lien certificates or tax deeds? I’ve interviewed retirement account specialists from two different self-directed IRA companies; EntrustCAMA and Equity Trust Company, and I’ve learned that it is possible to invest tax free in tax lien certificates and tax deeds with a self-directed IRA.

If you use money from a regular self-directed IRA account to invest in tax lien certificates or tax deeds, than your money grows tax free until you withdraw from your account after retirement. But, if you use money from a Roth self-directed IRA, and you do not take any withdrawals until retirement age – you do not pay any taxes on your profits! So if you are using tax lien or tax deed investing as a way to save for your retirement, you need to look into this.

Although many brokerages will say that they have self-directed IRA accounts, they are not true self-directed accounts. You can only invest in anything that they sell. A true self-directed retirement account will allow you to invest in anything that is not prohibited by law. Allowable investments include real estate, tax lien certificates, tax deeds, and notes, along with other of the more usual investments. True self-directed IRA companies are prohibited to sell you investments. They can recommend types of investments that you can use your self-directed IRA for and show you how to do the paper work for them, but they are not allowed to make a commission on what you buy. There are only a handful of these companies in the country. I personally only know of three of them and I’m familiar with only two. I’ll tell you how to find out more about these two companies later.

You might be wondering if you can transfer or "roll-over" money from your present 401k or IRA into a self-directed IRA with one of these companies. What I’ve been told from retirement account specialists is that you can only roll over money from your 401k if you are no longer working for the company that your retirement account was set up with. I know that you can roll over money from a regular IRA account into a self-directed IRA because I’ve recently done that. I took money from my IRA account with TDAmeritrade and rolled it over into a new self-directed IRA account with EntrustCAMA. It was easy to do. I was able to transfer the money when I opened my new account. I downloaded the forms that I needed from their web site and mailed them in. They took care of the rest.

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