The secret to good investing is good money management. Seeing your stocks and investments growing is good, but a sound adherence to money management will help you make sure your investments stay that way. The key is in the details and a well established money management plan can make the difference between a long-term and successful portfolio or a worthless portfolio after as little as a year.
Different investors look for different ways to manage their money, but consistently successful investors will probably be those who have a disciplined set of money management rules to follow. Of course, following a set of pre-determined rules takes any emotional or instinctual response out of the equation too, much like a professional poker player would do in a casino, which is also critical.
Though they often come under different names, there are essentially three key money management rules that, when applied, could turn a floundering portfolio into a successful one. The first rule of money management is to know what you are willing to risk. Before you even consider making a move, first take a step back and assess how much you are willing to, and can afford to, risk. The market can be a fluid and flexible place and as much as you don't want to lose any money, you also don't want to miss out on an opportunity that might come along tomorrow by investing too much money today. To do this confidently is a simple numbers game: 2% of your overall investment pot would usually be a comfortable and secure figure to lose at any one time, so 1.5% may be considered overly conservative, whilst 5% would almost certainly be considered aggressive investing. However, both approaches have their pitfalls, so pick a percentage to apply to your rule and stick to it.
Which leads onto rule number two. Live to trade another day. This might seem like common sense and, again, advice that is largely carried over from day-to-day life, but it follows on from not putting all of your eggs in one basket. Even if you make a handful of investments and none of them are successful, if you forward plan to still be able to keep trading, then you will gain market experience and learn from your mistakes; rather than lose everything and have no chance of ever gaining it back. Again this rule comes back to deciding your percentage and sticking to it.
The third rule is to know how to determine trade size. By doing this you will minimise unnecessary exposure to any risks, as you will have decided how much you are willing to risk and assessed exactly how many stocks you can buy or sell with that figure to minimise risk. This will also give you a far clearer picture of any final CFD trading outcome, whether good or bad, by simply multiplying the number of stocks by their worth, or estimated future worth.
Different investors look for different ways to manage their money, but consistently successful investors will probably be those who have a disciplined set of money management rules to follow. Of course, following a set of pre-determined rules takes any emotional or instinctual response out of the equation too, much like a professional poker player would do in a casino, which is also critical.
Though they often come under different names, there are essentially three key money management rules that, when applied, could turn a floundering portfolio into a successful one. The first rule of money management is to know what you are willing to risk. Before you even consider making a move, first take a step back and assess how much you are willing to, and can afford to, risk. The market can be a fluid and flexible place and as much as you don't want to lose any money, you also don't want to miss out on an opportunity that might come along tomorrow by investing too much money today. To do this confidently is a simple numbers game: 2% of your overall investment pot would usually be a comfortable and secure figure to lose at any one time, so 1.5% may be considered overly conservative, whilst 5% would almost certainly be considered aggressive investing. However, both approaches have their pitfalls, so pick a percentage to apply to your rule and stick to it.
Which leads onto rule number two. Live to trade another day. This might seem like common sense and, again, advice that is largely carried over from day-to-day life, but it follows on from not putting all of your eggs in one basket. Even if you make a handful of investments and none of them are successful, if you forward plan to still be able to keep trading, then you will gain market experience and learn from your mistakes; rather than lose everything and have no chance of ever gaining it back. Again this rule comes back to deciding your percentage and sticking to it.
The third rule is to know how to determine trade size. By doing this you will minimise unnecessary exposure to any risks, as you will have decided how much you are willing to risk and assessed exactly how many stocks you can buy or sell with that figure to minimise risk. This will also give you a far clearer picture of any final CFD trading outcome, whether good or bad, by simply multiplying the number of stocks by their worth, or estimated future worth.
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