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Never Invest More Than You Can Afford To Lose

So many people rush into investing in the stock market, many of them never even do basic research. Even if you have done a ton of research, it’s still no guarantee you’ll earn a big return. So what’s the best way to make sure you don’t get burned too badly? The key is to never invest more money than you can comfortably afford to lose.

If you lose the rent money, you’ll be out in the streets

Of course this is some obvious advice, but it still needs to be heeded. You have to make sure that you don’t put too much in the market, because you can lose all of your capital at once. That’s why you should keep your total initial investment to something that could be easily and painlessly lost all at once.

Once you begin trading with real money, emotions play into the formulation in an intense way. When you know how much work it is to amass cash, and you see it going down the tubes rapidly, you can’t help but feel something.

So it may be best for you to start with small trades that allow you to psychologically deal with any losses you may suffer. Of course, you may also win, but you should still be prepared for some amount of losses. If they are small enough, and with money you can afford to lose, you are more likely to stick with investing in the long run.

October 5th, 2007

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