Businesses invest in assets because it’s a great way to make money. As risky as it seems, taking it seriously, such as watching the market and having patience, can reduce the danger. Plus, there are tax benefits that most SMEs can’t afford to miss out on no matter what.
However, it isn’t the thorough, detailed investors that lose money – the “wisdom of crowds” clique. Usually, businesses enter the market thanks to a tip or because of common logic. Sadly, these are two terrible reasons to trade because they lead to a loss of money. Here are the ones to watch out for and their fixes.
Covering The Spread
This is an American term which is found in the sports industry. In investing, it is the process of trading on the price movement of options. In short, you can buy or sell depending on the value of commodities such as stocks, shares, and Forex. On one side, it’s a leveraged way to make a profit. However, on the other, investors may lose more than they put in because it is leveraged. Spread betting in the industry is without a doubt a legitimate way to trade, but you need to be aware of the “sure-thing” attitude. Research it first to see if it fits in with your portfolio model.
Timing The Market
The title is an industry term for predicting the future value of assets. Studies do suggest it is possible to do in the short and medium-term. Indeed, lots of investors have used it to make a quick buck after spotting a pattern that stood out from the crowd. However, over the long-term, the research suggests it is almost impossible to pull off without a large amount of luck. A JP Morgan study found that a buy-and-hold investor was likely to be more than 450% up on their investments in a 20 year period. Be sure to use it wisely and don’t rely on this method for the foreseeable future.
Buying Gold
It never loses its value, right? Great, then it’s an incredible backup plan. By diversifying into precious metals, the company will always have a contingency should the worse happen. The problem isn’t with the initial value but the amount at the end of the investment. Experts believe gold, silver, and platinum to name three deliver paltry ROIs. Although the money appears safe, it’s only the same as sticking it in a bank account and accruing interest. Think long and hard before pumping money into a “guaranteed” win.
Big Shorting
This is a term coined after the housing crash and subsequent film “The Big Short.” After watching it, people realised they could make money by placing bets against the market. What the film doesn’t point out, or what people fail to see, are the huge risks. For one thing, the losses are infinite because a stock can rise and rise. Secondly, profits are capped at 100%. As nice a chunk of change as it may be, the numbers don’t add up regarding risk vs. reward.
Are using common logic to invest? If so, are you going to change tack?
