Investment may look like a gateway to a better life as long as you do your research and follow the current trends that have taken over the market. However, it’s not as easy as it seems. If it was, then everybody who put anything in the market would be buying yachts and building skyscrapers. Unfortunately, the financial markets, much like anything else in the world is based on competition, smart decisions, and taking things slow and steady.
Furthermore, success in the financial markets is sometimes not determined by your choices made before placing a trade or making an investment, it sometimes depends on the choices you make before even seeing the trading dashboard on a company’s web application or trading terminal.
In this article, you will learn 3 tried and tested ways to keep yourself safe before you ever get into trading or investing for a living. The article will list a few red flags as well so that you are more aware of your surroundings. So, without further ado, let’s see what important factors you need to pay attention to.
The first act of safety is to see what the current economy is like in the country. Make sure to consider all possibilities in this case. Things such as coming plans, GDP projections, unemployment rates, inflation rates, and anything else that could tell you something about the performance of your country.
But this is quite obvious, right? What is the main lesson for safety when researching the economy? Well, the obvious baits.
What investing 101 teaches us is to buy low and sell high, but when we’re talking about investments in indices, that’s not necessarily the strategy to take. For example, a massive slump in the economy does mean that there will be another recovery, but there is no guarantee of stability there. No guarantee whether all the market size will recover, or when it would recover, therefore jumping into a diminished market is the most unsafe decision a trader could make at least nowadays.
The perfect time for a safe investment is when the growth of a country’s economy is stable. No 30% jumps should be expected, the maximum that can be hoped for is around 3% growth annually. At least at that point, you have a guarantee for growth rather than a promise for large growth.
That’s usually how safety works and will continue to do so well into the future.
The next stage is to check the local regulation very seriously. Whether a company is following all the laws is very hard to tell, so it may seem impossible to truly compare them to the local standards. Therefore, the best way to actually check whether or not a company is following regulations is to see if they have the regulator’s license.
Remember that every single financial company in your country has a legal obligation to the local government. The regulator can be the central bank, the central government itself, or a separate body that is answerable to the finance minister.
In the case of the United States, the regulators you need to pay close attention to are the NFA (National Futures Association) and the SEC (Securities and Exchange Commission).
The NFA mostly governs bodies that are more involved with trading than investing. What this means is that trades happen very often and very fast in this sector of the market. The assets that are usually traded like this are currency pairs and options. In the SEC’s case, it’s mostly things like bonds, stocks, indices, and commodities, basically, things that one would buy and hold on to for a long time.
If you’re more of a trader yourself then it’s recommended to learn about NFA regulation details here or by contacting the regulator itself to give you a full rundown on what they pay attention to. The same thing works for the SEC as well.
Therefore, whenever you choose the company you’d like to open an account with, make absolutely sure that this company has a license. You can do this by searching on the company’s website, or by searching on the regulator’s website. You will most likely need a registration number of the company, the company name, or their parent company name. This can be found either in the footer (very bottom of the website) or in the “About Us” page of every company’s website.
If you’re still feeling unsure, financial regulators encourage investors to contact them for more detailed information.
The third safety precaution is your own budget. It’s probably quite obvious that not 100% of your paycheck should be going towards investments, especially if the economy is not in good shape at the moment.
But you’d be surprised just how many people throw everything they have at a possibility that the economy will suddenly get much better, and they’ll all be very rich.
The most sensible approach towards investing is diverting 10% of your monthly income towards it. That 10% could have been spent on other meaningless things such as eating out, paying taxi fares etc. By immediately diverting that 10% into your investments account, you basically give yourself a new budget to live on for the rest of the month.
However, make sure that you don’t count your investments as savings. They’re not an emergency fund to use in times of crisis unless it’s a matter of life and death.
It may not be the fastest way to reach your financial goals, but at least with a plan like this your chances of actually reaching it get much better.
John Smith is a Digital Marketing Consultant with more than 8 years of experience in SEO, SEM, SMO, blogging, etc having wide knowledge base into content marketing.