Every investor have different risk appetite and guidelines to evaluate an investment.
Just before anything. Do you know why you're investing for?
Make sure it's not because your friend told you so. Your friend might be providing you with one of the answer towards your question. But I'm sure that's not the only one.
Let's go into the topic now shall we?
Do you know why prices goes up or down for the assets? This is due to people buying and selling. Simple isn't it? In every transaction out here, each buying order that is filled will mean that someone is selling. Those that are buying would have just entered the position while those that are selling have just exited the position.
When you exit your position, does it signify that your thesis have been met or this particular asset is currently over-valued? If so, congratulations. There is also another possibility that the price now has triggered your stop loss or that the current situation deviates too much away from your thesis. Now, this will be another situation that differs from the first. Take this as a lesson learnt.
How about your thesis and game-play? Is this an asset play, growth story or income play? You'll have to know this well before you initiate any position! Different people are keen in different play due to their circumstances and what they want from this investment. A good key towards this is diversification. Having a basket of investment filled for both growth and income will be able to tie you through the situation.
Wait. Just a moment. Are you having an adequate amount of cash position too in your war-chest? This funds here will be useful when Mr Market is undergoing a depression! With an appropriate amount of cash you'll be able to make good use of the situation like big market crashes and benefit from it when the market and economy recovers!
Now what is an adequate amount of cash position? Well. I do not know. This is truly up to one self to determine. Some are comfortable with 15% while some need 50%. To each it's own. But definitely to hold more when the market is getting over-valued.
Never forget to NOT over-invest yourself. Do you have sufficient emergency funds with you?
Ahh. Now we're back to the same question aren't we? What is sufficient? The answer for this is heavily dependent on your expenses. 6 months? 12 months? I don't know. Up to you to determine. Assuming you were to go for 6 months, one with higher expenses will definitely need more amount to tie them through than someone who has a lesser expenses.
But again. This funds here (emergency funds) are a fund that you will need in any time soon. And this funds will ONLY be used when you're facing a difficult situation. Not for occasions like a vacation or what.
What about your risk appetite? Some are more conservative, while some are more courageous. You do remember that in each 'investment' there is risk right? Now, your risk that you're taking will be compensated by the returns from each investment. A higher risk investment will reap you a greater return than the one that is safer. I'm sure.
Again, to be safe and yet you want to win? Get a basket filled with both conservative asset and higher risk investment. Diversification is the key remember? Diversification. Not Diworsification. Balance your portfolio evenly and ensure that they compromise of both asset. A higher allocation towards 'safer assets' will be able to provide you with some cushion when your risky investment.
Read:
Is investment really so difficult?
Buy and Hold - Who sold you that idea?
The traps in stock market
Transaction Cost - Are you a trader or an investor?
Do you now know why you're investing for?
If so, what is your risk appetite and belief towards each investment? :)
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