Setting investment goal or target is a must prior to investing money in equities or mutual funds. Investment goals should always be for long-term. Long-term investment goals can generate good return over a period of time. Short term investment can be fetal and may result in loss.
In share trading business, prices in the stock markets can fluctuate rapidly over a short period. Hence a long term investment prospective is always good. If you want to invest in stock market then go for long-term of at least 2 years.
How to Set Investment Goals?
In order to set an investment goal for yourself, you need to ask some questions:
- Understand your sources of income, expenditure and risks you can take.
- Why do you want to invest? To increase income and wealth or to meet your other immediate requirements? Do you want to save money for your retirement or need money to buy a home or you just want to improve your living standards?
- How long can you leave the money invested and allow it to grow.
- Do you have any short-term financial needs?
Once you get honest answers to all the above questions, you will be able to understand your investment goals and the type of investments you can make.
Most people sell their shares as soon as the prices falls. These are the people who make most losses in share trading. NEVER have this approach. This is why you need a long-term investment prospective to protect yourself from risks of trading for short-term.
Investment Guru Warren Buffet would never remove any stock from his portfolio if the fundamentals of a company is good. He would allow enough time for his money to grow. There is no hurry. With this kind of long-term investment approach, it doesn't matters if price of a stock falls over minutes, hours, days or even month. If the company has strong fundamentals and strong management, it will always grow.
If you are not sure about your investment goals or the kind of risks you can take, then start with mutual funds. Mutual funds are a good way to start investing in stock market. Mutual fund companies will invest your money in selected shares and help your money grow.
If you are still not sure about investing in stock market then most probably you can invest in fixed income securities that are considered as risk free.