Investing for Beginners: Remember the Five “P’s” to Guide Your Effort

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In these trying economic times, it can be quite an accomplishment to meet your monthly budget requirements and then have money left over for savings. We all must learn how to save on a regular basis to provide for our future financial security, but we also must take the time to lean about investing, a rather daunting topic since none of us ever were really taught much about the discipline during our collective time within structured education.  The subject must be approached at some point in our lives and in just the right manner or our precious savings can disappear in the blink of an eye.  The market can be very cruel when it teaches its lessons to the uninformed and impatient pupil.

The fact remains that you are reading this article, and that is a good start.  Hopefully, the following anagram will help guide your effort and keep you on the right track.  Investing is all about “PPPPP”, the five “P’s”:

• Preparation:  As you start your journey, you need to immerse yourself in the subject matter.  Buy a book on investing, read articles on the Internet, and visit your local library to study up on the topic.  Your first objective is to familiarize yourself with the terms and principles of the craft so that you will fully comprehend your lessons to follow.

• Professional:  After knowledge, experience is key, but unless you want to lose money gaining it on your own, the only “shortcut” available is to find a competent professional in your locale to teach you the basics and guide you along your path.  Accept your “amateur” status.  Enroll in a class.  Seek out an investing club, but find an expert.  He will teach you about fundamental and technical analysis, how to develop a trading plan, risk management principles, how to choose a broker, and a whole lot more.  Gain from his wisdom.

• Practice:  At this stage, you are ready to determine what kind of investor that you are.  You may like to study companies and invest for the long-term, or you may prefer a more active trading regimen where you move in and out of the market attempting to profit from short-term opportunities.  Your personality will dictate which one.  The former type uses “paper-trading” to simulate real investing.  For currency trading, forex brokerreviews will point you to those that offer free demo accounts for practice.  For high-risk arenas like forex trading, specialized training is a must, coupled with hours invested on these demo systems to perfect your trading plan and to gain the confidence and consistency necessary to survive real market conditions.  In whatever medium you choose, practice is vital to gain experience.

• Prevention:  Investing is really about managing risk.  All investment vehicles offer a potential reward, but only if you are willing to accept the risk for a potential loss.  Low risk items start with savings accounts and U.S. Treasury Bills.  Medium risk extends to stocks and bonds, and high risk is accorded to things like real estate, commodities, futures, options, and currency trading.  For each vehicle, there are tried and true risk management principles that will minimize your potential for losses.  You must learn these principles and employ them.  Losses will happen.  They are a fact of life, but your objective is to limit these losses, and to “let your winners run”, a favorite investment saying.

• Production:  Producing consistent positive results is your goal, so take everything you have learned and as Nike commercials have said, “Just do it!”