In investing most times you are your worst enemy. It’s a reality that most do-it-yourself investor have to accept. The buy and hold approach only works if you buy and hold. If you’re a day trader, it doesn’t work if you keep your trades going for longer than a day or two. Strategies are meant to be followed and usually it’s the person following the strategy that is the problem. But not you, I would never say that would happen to you. Still, there are 5 questions you should ask yourself about any investment that you’re about to make.

Am I Ready To Lose Money?
This is the most important determining factor in investing. It’s a risk and you should be completely comfortable with the fact that the risk could lose you money. Of course, the risk taking should show some return so that you do actually make money in the long run. Often times when I buy a stock it immediately goes lower and I’m losing money, but I’m ok with that because I ‘m ready to lose money and wait for the investment to turn profitable.

Do I Know My Exit Point?
Another key point in keeping your worst enemy away from your investments is know your exit strategy for a specific investment. This means knowing when to cut your losses, but also knowing when to take the profit from your winners. Both of the elements are critical to your success as an investor but neither of the exit points should be decided after you’ve already put money on the table. Once money has been invested you have an emotional driver that can change your perspective and make you less objective. Keep the decision based on the numbers and decide before you invest.

Does This Match My Risk Level?
Your risk level is something that you will learn as you go. Although you may have an idea of what level of risk you’re willing to take, many people seem change that level once they are invested. That’s OK, but just conscious that it is changing. So when it comes time to thinking about a specific investment you can evaluate it against your risk level as you know at that time. If you’re not 100% comfortable with how it matches up against your risk profile then stay away.

Do You Know What’s Going On With The Company?
This might seem like a simple question of due diligence and essentially, that’s all it is. But many people might just invest on a tip, rumour or news release. You should be able to explain to someone how the company makes money and why they are a good investment.

Do You Know What’s Going On With The Competition?
A very important part of the research process is evaluating what the competition is doing. Before investing you should be very aware of what is happening not only with the company but what its peers are doing to ensure that they aren’t about to crush your investment. That would be bad. By knowing the competition you will be able to show an understanding of the environment your company is involved in. If the investing climate is bad in that sector, it might not be the right time to buy.

There we have it. 5 straight forward questions to ask yourself before you step out there and invest. Of course there is a lot of knowing yourself, knowing the investment, and knowing the competition out there so I suggest taking some time to work on all three. Once you do you’ll be a more confident investor and on your way to a profitable portfolio. Happy investing!

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