Previously we looked briefly at the four key areas market novices must have at least a basic understanding of before they venture into the stock market. Over the coming weeks we will explore these four vital areas in more detail and examine the main considerations in each.
It is an unpleasant fact of life that a large proportion of new stock market entrants fail and withdraw from the market within the first six to twenty-four months. One of the first steps to ensuing you are on the right path to success is to develop an understanding of yourself. The first place to start is to determine your financial goals.
Step 1 – Determine Your Financial Goals
As boring as it sounds, the very first decision you must make before getting started in any type of investment (i.e. stocks, property, bonds cash, etc) is to identify your financial goals.
A written set of financial goals should be seen as your financial ‘roadmap’ to success. This ‘road map’ will become an important resource in assisting you to create long term wealth. It should include both monetary and lifestyle objectives. This is important because it is the underlying reason behind wanting to create wealth that will motivate you when times get tough. It will help you refocus when you experience a string of loses in the stock market.
The simplest way to approach creating a financial roadmap is to ask yourself, “What are you trying to achieve through investing (or trading) in the stock market?” Remember it is important that you identify the underlying reason for wanting to create wealth.
Avoid answers like “I want lots of money” or “…because I want to be rich”. These answers do not go to the heart of what you actually want. Ask yourself why you actually want to achieve wealth. It may be because you want financial security or it may be to gain the freedom to do what you want, when you want. Whatever your reasons make sure you focus on the why.
Clearly defined financial goals are a much better motivator in achieving wealth. By having clear goals you become more focused and you will be more likely to reach your goals.
Take the time now to establish your financial goals:
1. What your monetary objectives are for the next 12 months, 5 years, and 10 years?
2. What your lifestyle objectives are for the next 12 months, 5 years, and 10 years?
This is not a final list. Setting goals should be an on going exercise. You should get into a habit of reviewing your goals on a regular basis.
Once you have a set of goals, the next step is to take action towards achieving those goals. Goals amount to nothing if you don’t take action.
Pick one and start working towards it today. Break the goal down into small tasks.
Aim to take at least one action a week towards achieving the goal. It might be to open a savings account and start saving. Or it might be to increase your knowledge in an area of finance you are unsure of. What ever the financial goal, take a small step towards achieving it on a regular basis.
By better understanding yourself and your goals, you are better placed to devise stock strategies that are suited to you. This will increase your chances of success over the long term immensely.
Once you have identified your financial goals your next task will be to ascertain your risk profile, your mental make up (psychology) and your specific strengths and weakness. In the next article we will explore what is needed when assessing your risk profile.
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