People usually look forward to the day that they can hang up their shoes and live a more carefree life. As the saying goes, “it is important to reward yourself.” This is the essence of retirement; when after years and years of hard work and countless contributions to society, people can rest, relax, and focus on enjoying the next part of their lives together with people most dear to them- family and friends.
However, attaining good retirement years takes preparation. There should be savings, investments, or income streams where one can get enough financial security and stability to pay the needs and wants in life. From the basic necessities of food, rent, electricity, and water to the wants of travel, get-togethers, and entertainment, retirees must first have an allotted budget for this. Given this, allowing financial security and stability for retirees is why there are many companies that offer retirement plans.
Most often than not, people cannot fully depend on these retirement plans alone. They must have their own plan to make the most out of life. With this, one plan to prepare for retirement is to invest in the capital markets and certainly, the amount of technology today has made this retirement plan easier.
Investing in the stock market has two ways earn money. One is from capital gains, or when a stock price increases. The second one is from dividends or when a company issues a part of their yearly earnings to the holders of their stocks. However, since stock prices can move up and allow people to gain money, stock prices can also move down and allow people to lose money. Thus, investing in the stock market denotes risk. With this, just like in retirement, investing in stocks also requires careful preparation and action.
The first way to prepare for investing in the stock market is to understand it. Four recommended things to understand before investing in the stock market are:
- how the stock market works or the basics of investing
- the difference of investing versus trading
- fundamental analysis or understanding how companies are valued
- technical analysis or the psychology behind the movement of stock market
People can gain understanding on these topics through either reading books or articles about famous investors like Warren Buffet and Peter Lynch, or by going to seminars organized by stock brokers.
Aside from understanding the basics of investing in the stock market, the second way of preparation is to understand one’s own emotions. As a person invests, it is important to acknowledge that the stock market involves risks. One week, a stock surges to $100 a share and then, the next week the stock could drop to $25 a share. However, as a person understands the stock market, one should realize to stick to this person’s own valuations regardless of what the market dictates because if correctly done, that valuation is where the price would emerge in the future.
Thus, it is important to know when one feels fearful or greedy. More importantly, in knowing that one feels this way, this person must have action plans to calm himself or herself down. One example is not looking at stock charts too much and sticking to the news of what the company has to offer.
To do the second task of understanding their own emotions and tendencies, people could write a journal of what they are doing once fear and greed is felt and read through these journals to understand themselves.
Another thing that people can do is to have a mock session or simulation of investing in the capital markets. These can be done through online simulators in sites like wallstreetsurvivor.com or apps like iTrade. With this, people can get acquainted with the stock market but also to how they react; thus, they would be able to control these emotions more.
Most importantly, the last form of preparation entitles that people to not forget that experience best validates their knowledge and understanding. Thus, they must slowly dive into the action of investing in the stock market and learn from there. To do this, a recommendation would be to slowly pour in cash per one or two months. This would allow aspiring investors and retirees to adapt while minimizing their risks.
Indeed, do not forget to reward oneself. As people look into retirement, they must remember to keep themselves financially stable and secure. A step towards this stability and security is to prepare themselves to invest in the capital markets by understanding the market, understanding their emotions, and learning from their experience while minimizing risks. Now, if people remember to invest through the right way, they can surely gain more than enough for retirement.