Ways to Avoid Emotional Investing

Taking emotional decisions for your financial investments can prove to be highly devastating. Emotional investments are often short-term choices, which affect the long-term benefits in an adverse way. If you observe the cycle of market emotions, you will find that an investor is ruled by the sentiments of optimism, thrill, euphoria, anxiety, denial, fear, desperation, panic, capitulation, despondency, hope, relief, etc. Owing to these emotions, an investor may take decisions, which may not benefit him in the long run.

Take a simple example: When you see on television that the market condition is not favorable for investment, you may panic and start thinking about selling at a low price. In another scenario, when you realize that the price of a stock is going to rise even further, you may get excited and buy at a very high price. However, think about the consequences if things do not go as predicted. Apart from losses, you may even suffer a financial setback.

You must be able to keep your emotions away from investing decisions in order to attain your financial investment goals. Hence, it is important that you take concrete steps, which will eliminate any kind of financial investments as an emotional response. Here are a few strategies that will help you in preventing emotional investing.

Have a Strategic Financial Plan

It is important that you have a strategic financial plan ready, which can act as a driving force for your investment decisions. It should include your financial goals and means to achieve them. It is possible that your emotions will go on a roller coaster ride when you will hear alarming words, like ‘recession’, ‘slack’, ‘collapse’, etc. Also, there may be times when things, like herding, market speculation, or media hype will prompt you to take sudden financial decisions. Do not get swayed by all this, and make investments or sell assets based on such temporary changes. These short-term emotions can cause long-term problems to your financial goals. Align your investments with your financial plan for reaping benefits of good returns. It is advisable that you review the plan and update its strategies every year.

Dollar-cost Averaging

It is an effective way to avoid emotional investments. Equal amounts of dollars are invested regularly for a previously decided interval. This helps to sustain during all types of marketing conditions. For example, instead of investing $2400 in stocks or funds at once, you may contribute $200 to the holding every month. This will generate an average price for the investment over a period of one year. It immensely helps the investors to manage risks.

Avoid Herding

Investors often fall prey to what we know as ‘herd mentality’. When the word spreads that a certain stock or industry is going to perform really well, groups of investors start taking interest in it. They are even ready to buy at a higher price because they think that prices will increase further. However, we have already witnessed the problems that herding has caused in the stocks related to technology, real estate, gold, etc. Hence, avoid falling into this trap. Understand why you want to purchase a stock and have valid reasons for it.

High-quality Investments

You must always buy high-quality investments, which will perform for you in the long run. You should not go for stocks, funds, or other investments, which will not be feasible, especially in the wake of an extreme market condition, like recession or slow down. Hence, do your research thoroughly before choosing your investments.

Consult an Investment Adviser

If you have a history of taking impulsive and emotional investment decisions, it is better that you take professional help. A financial adviser can help you to take rational and accurate decisions. He can also guide you about when and where to invest. He may study your long-term financial goals and arrange to structure your portfolio accordingly. Also, he will be able to exercise control on what kind of investments you make and when you sell them according to the market conditions. He can be a great asset to help you to maintain a diversified portfolio.

Invest at the Right Time

Due to the emotions of fear and anxiety, many people like to pull out of the market when the conditions do not seem good. They abandon their investments when they hear bad news. This is okay if you have allocated assets to short-term investments or if the investments may eventually challenge the limits of your risk. However, if you wait for the right time, you will reap huge benefits on your long-term investments. In 2008, many people pulled out of the market fearing the inevitable. However, the market soon regained itself after sometime, and these people lost huge benefits. Don’t let this happen to you.

Diversify Your Investments

Warren Buffett has rightly said that we should not put all our eggs in one basket. You should reduce the risk by diversifying your investments. These investments should be distributed on the basis of intensity of risk, country, industry, etc. You may also invest in hedge funds, real estate, bonds, etc. This ensures that even if one investment does not work the way it should have, there will be others who will continue to do well.

Know and Manage Risks

It is not practically possible that an investment may be completely risk-free. You must understand about every aspect of the risk involved in your investment. You must take calculated risks in order to mitigate the probability of making losses. You can consult your adviser and tell him about the level of risk tolerance that you are comfortable with. Just because someone tells you that high risk is high gain, do not go on to invest your hard-earned money.

Equilibrize Your Portfolio

You must balance your portfolio regularly. This will help you to ensure that your investments are within your risk tolerance limit and you have a diversified asset allocation in your portfolio. It helps to strategically align your portfolio with your investment objectives. Many times, people do not sell their assets that perform well; however, this may not be financially beneficial in the long run. Bringing a balance forces you to take a practical and critical look at your portfolio without getting emotional about it.

Acknowledge Your Emotions and Isolate Them

Whenever you start getting bombarded by positive or negative emotions regarding an investment, acknowledge and isolate them. Avoid the urge to make decisions based on these emotions. Try to recollect your investment mistakes, which you may have committed in the past because of an emotional surge. Try to get to the bottom of the facts and gain knowledge whether a certain thing that you have heard about the investment is really true. If you are satisfied with the results, only then go ahead and make the financial decision.

Research the Alternatives Thoroughly
Many times, you think a stock is good because top-notch analysts on TV, print, and Internet are vouching for it. You may base your decision to buy or sell an investment based on these reports. However, it is essential that you conduct a research yourself before deciding about buying the stock. Look out for the trend that the stock in question is showing, and verify its financial documents. Do not make hasty short-term plans, which will affect your long-term financial goals.

As an investor, you should never invest more than you can afford based on ‘hot tips’ or market speculation. Also, no matter what, verify all the ‘hot tips’ before you get excited and execute. One more mistake that investors commit is that they concentrate on interest rates, inflation, market conditions, natural disasters, etc., for taking an emotionally driven financial decision. However, they should rather concentrate on things, which are within the scope of their control, like allocation of assets, diversification, expenses, etc., for making their investments work. Now that you know how to avoid emotional investing, don’t let your emotions become detrimental to your financial gains.

Tips Before Investing in a Startup Company

Investment Tip
Try to invest in a startup which operates in a market you understand. This will reduce the risk, as you will know about the success potential of the startup.
Before you take out your checkbook to invest in a startup, thinking it to be the next ‘Facebook’, it is essential that you are completely aware about it. Investing in a startup company can earn you both, good profits or incur heavy losses. It all depends on whether or not you asked the right questions before taking the decision. Many investors pose the right questions to the owners of the startup during the due diligence process.

Ask the owner if the business has a scalable model, because this will expand the business and allow you to get your money back. Try to investigate the backgrounds of people, ideas, and funds related to the startup, before you decide to sign on the dotted line. Remember, the owner should be able to add value to the venture. This Buzzle article will guide you about the questions to ask before investing in a startup company.

How much money can I risk and what will be the returns?

Like any other investor, you will have to take a tough call about how much money you would like to risk. Since it is a startup, there are no guaranteed returns. The risk of the business going into losses is far more than that of an established one with a set customer base. Hence, don’t risk more than what you can afford. You will also have to check what the return on your investment will be. You have to understand that since it is a startup, it will take time to grow. Hence, it may so happen that the ROI may be less during the initial years, but will get better when the business picks up momentum. If your calculations do not show an impressive annual return, you should rethink about investing in the startup.

Who are the other investors and how many have already invested in the startup?

If you find that there are other investors who have already accepted the offer, then it may be a risk worth taking. Studying the capitalization table will tell you about the number of investors and if the stock has been released. As an investor, don’t just get swayed easily by the owner’s impressive sales pitch when he tells you that you will be their only investor. While this is acceptable in case of a small startup company which does not require too much investment, it may not work when the company grows. It is important that there are more than two or three investors, so that in case of losses the burden will get divided. This will reduce the financial pressure on an individual investor. Remember, don’t put all your eggs in the same basket, try to invest in multiple ventures. Ideally, the owner should also contribute towards the financial investment in the startup.

What does the business do and who is the owner?

First and foremost, you must understand the activities of the business. You must know the products and services it offers, what comprises your target market, how the product or services are unique, and the if demand for them will continue to increase. This will give you an idea about the functioning of the business. It is important that the owner has entrepreneurship skills to steer the business to success. Investigate the qualifications and professional history of the owner. Try to judge if he will be able to shoulder the responsibilities that the position requires. Ask him about his goals, plans, strategies, and milestones for the venture. This will help you to ensure that the venture will not end up a headless chicken.

How did the owner calculate the amount required for the startup?

As a responsible investor, you should know how the owner came up with the amount for investment. He will have multiple budgets along with financial estimates ready in his business plan. This, he will incorporate in order to impress you, but you should ask him about the methodology through which he reached the said amount. Try to negotiate the amount. He may also try to pitch the idea to two or three investors, in order to get all of you bidding and benefit from the competition. However, if you are not convinced about the investment amount, or the way it was calculated, it is advisable not to jump into the venture.

How can I connect with your top 3 customers?

Ideally, you can visit the top 3 customers who give maximum business to the firm, with the owner. You should get to know who they are, how was the startup able to do find and convince them, what they think of the startup’s products or service, whether they live up to their expectations, what are the improvements that need to be brought about, etc. Getting to know all these details are important for you as they will tell you if the customers are satisfied with the products and services, and will continue to have business relations with the owner over a period of time. This will tell you about the profitability of the venture.

How to monitor business growth?

Your prime interest as an investor is gaining maximum profit from your investment. Hence, you should ask the owner to have a reporting system or mechanism in place where you will be notified about the progress and development of the business. Public companies have to report their business results quarterly or yearly, but private startups do not have any such mandatory requirements. Hence, it becomes all the more important for you as an investor to keep an eye on where the startup is heading. You must keep a tab on the transactions and finances of the startup so that you know that your investment will perform better. Many investors also serve on the board of directors in order to get firsthand updates about the functioning of the company.

What are the plans for future funding?

You must be convinced about the startup’s revenue model, and its ability to work. You must question the owner about the sources for gathering funds in the future. He cannot be overly dependent on you for the financial needs of a developing company. You may not necessarily be able to invest large amounts in the business. One of the ways for the firm to raise capital is to avail loans for financially supporting its expansion plans. The other option is to reinvest part of profits in the business. If the startup has a steady customer base with good revenues, future funding should not be an issue. You must be aware of how the venture plans to financially fund itself in the future.

How will I get my money back and when?

You must have a clear business exit strategy for yourself. Your investment must be such that you will be able to withdraw it after a certain period of time. Hence, you must mention a clause in the paperwork related to your investment about the period of withdrawal, otherwise your money will lie locked-in for a long period of time. You should also be clear about the timeline for distributions. You should also have clarity about the capital return once you decide to withdraw. You will also have to check if there are any stock options which are available for you. Keep a close watch on how the owner calculated the deal offered to you, and the percentage of ownership that you will receive against the investment.

What do the sales and revenue (financial history) till date indicate?

Before taking an emotional investing decision, you must go through the existing financial documents to understand if the company has booked any kind of profit. You should also know about its sales projection and revenues. Understand the assets, liabilities, development cost, revenue management, etc. Many times, fraudulent owners may project different figures in the financial documents to make you invest in their venture. Hence, it is advisable that if you are not able to understand the financial documents, have them evaluated through an accounting professional who can find faults, if any. Once he verifies that the financial position of the startup looks favorable and the information represented in it is genuine, you will feel a lot more assured about your investment.

Apart from the questions mentioned above, you must also ask about the team handling the venture, the legal documents related to the business, the burn rate for the raised money, the advisers, the customer acquisition cost, the competitors, the monetization strategy, the allocation of funds, etc. Now that you know the questions to ask before investing in a startup, do not hesitate to ask these before entrusting the owner with your hard-earned money.

Great Ways to Invest Money

With the kind of financial situation we are facing today, it’s difficult to precisely determine the right kind of investments for obtaining a high return. The amount you want to invest and the time period for which you are investing depends on your short-term or long-term goals. Moreover, there are several high risk investment options which can be the best way to invest money short term, but then that would depend on how much risk you are wiling to take. If you are not for taking high risks, there are other options too, which can be good short-term investments.

Best Short Term Investments
When you think of return on investment, you should think in the long run, but if you need short-term gains, then there are several options available. Some of them are:

Mutual funds and stock investing has the capacity to give you excellent return in the short run. Traditionally stocks have given a high rate of return, but then it can be highly risky. One day, you may find the prices of stocks rising high, and the very next, they fall.
Most of the top-notch companies issue stocks and shares, so you can go for them. Then there are penny stocks which you can also go for. Each of these shares cost less than a dollar, and you need to trade them within a day. You may not get huge returns, but small gains over a period of time.

You can opt to buy commodities like gold and silver, whose prices are usually on the rise. This is the smartest way to invest money as they give good returns not only in the long run, but in the short term as well. Gold investment can be said to be a safe bet as gold prices remain stable even when the prices of other things go down.

Trading in foreign currencies is one of those options which you can use for short-term investments high return. The forex trade market is such that you buy foreign currencies when their value depreciates, and sell them when the price increases. This is a high risk option, but can be the best way to invest money short term.

If you don’t want to take all the risks associated with investing in stocks, mutual funds, commodities and forex trading, then you can opt for short-term high-grade municipal bonds, money market accounts, government savings bond and certificate of deposits.

This is one of the safest and best short-term investments which you can go for. These are issued by the state government or at times by the local government, and their value usually does not depreciate. The government requires money for several projects which it may be carrying out, so it issues such bonds. So the chances of you making loss by such investments are less. Moreover, you get tax benefits by investing in this option, but before buying, make sure that you buy only from reputed agencie

Such accounts are offered by financial institutions, who in turn invest your money in securities issued by companies or the government. They earn interest from such investments, and a part of the profit is paid to you. They usually have high interest rates, but you may need to maintain a certain minimum balance, or else you may have to pay extra fees.
There are other low-risk investment options, like bonds, which you can opt for.

One of the smartest ways of investing money in the short term is ‘flipping’ real estate properties. ‘Flipping’ means buying real estate properties which are on the verge of foreclosure and selling it later on. As the lender does not make any money from a particular property, they may want to get their money back as soon as possible. This gives you a chance to negotiate and buy the property at a lesser rate than the market value. Once you have bought it, you can sell the property at market value.
So what is the best way to invest money short term? There is no fixed answer to that, different people have different needs and preferences. The kind of investment you want to choose depends upon you, but make sure you go through all the rules, as well as the terms and conditions before investing.

Ways to Advertise Your Small Business Online

The Internet is perhaps the most cost-effective and wide reaching means of advertising today, and with the number of worldwide Internet users rising steadily, this is a realm that holds much optimism for business owners. Smaller businesses are restricted to smaller advertising budgets, so they need to make the most out of any channel that they get. The Internet represents a completely risk free and low resource utilizing medium that is very easy to tackle.

A small business owner can undertake a number of Internet advertising methods on his own, or he can hire a team of specialists to do the same for him. Either way, the objective should be to make the company’s presence felt in various different forums and to get people talking about the company and the services and the products that it offers.

Ways to Advertise Small Businesses Online

If you really want to advertise your business on the Internet, then you need to understand the dynamics of your targeted segment and the kind of websites and portals that they visit. Internet marketing also has a firm design and blueprint behind it, and it is necessary to stick to this plan. You also need to understand the concepts of Search Engine Optimization (SEO) as this will enable the content of your website to rank higher on search engine results, thus improving your visibility. And yes, you will most certainly need a website. This is something you can achieve with minimal costs, so do not even think twice about creating a website since this is the best way to do it. With that said, here are some tried and tested ways to advertise.

Use Social Networks
Social networks like Facebook and Twitter have more than 700 million users combined, and these are breeding grounds for advertisers. You will have to negotiate a revenue sharing model with the network itself, but the exposure that you will get will be immense. You can target the age groups and profiles that you feel match your potential customers, and you can spread information and awareness about your business. Social media marketing is the new buzzword in the marketing world, and you must act soon to exploit the potential this provides.

Maintain and Update Blogs
The objective here is to convince people that your company is an entity, and this can be achieved by creating and maintaining a blog on a regular basis. This can be done for free, and it allows the users to connect with your business on a more personal level. The first rule of marketing is to connect with your customers, and a blog is the perfect platform to achieve this.

Online Classified Ads
There is no better way to gain exposure than to be present when the customer really needs the service that you provide. By registering with classified ads online and other Internet marketing monitoring systems, you will ensure that your name will arise when the customer carries out a search. Some of these platforms needs to be paid for, whereas some are free. The free platforms will only hold your ads for a limited period of time though, so you will need to keep updating your ads on a regular basis.

Chat Rooms and Forums
You can hire a team of a few people to regularly visit chat rooms and forums and talk about your company and your services. This advertising will be completely free of cost and it will give you a great deal of exposure. You can even solve some people’s problems online, and this will build your goodwill in their eyes. The process of branding and image building is a continuous process, and the Internet provides you with various methods in which you can achieve this goal.

Emailers
Everyone who uses the Internet has an email address, and if you can convince them to give you their email address you can create a massive database of existing and potential customers. You can regularly send them email based ads which are very simple to design, and the best part of this OTL (Over The Line) technique is that the customer feels like he is getting personalized attention. This builds a relationship with him and eventually aids your business.

There are many companies and individuals who are adept and well versed with digital marketing and online advertising. You can enlist the help of such parties and have them carry out all these tasks for you as well. Marketing over the Internet has changed the dynamics and the concept of the term completely, as it gives you access to an individual every time he goes online. Moreover, the negligible costs involved make this a very attractive proposition for small businesses who are operating on a shoestring budget.