The MOST asked question of all time I’m sure. Even more than what’s your name!
This question is a very loaded question, when asked to an experienced investor, it will usually result in a broad/vague response as to not give actual numbers. The reason for this is because there is no guarantees when it comes to investing so if the experienced investor responds with numbers and it results in the individual losing money, where does he/she go to complain for the loss of his shillings? That’s right, the experienced investor!
So don’t get frustrated if you’ve ever asked someone for advice on this question and they’ve given you a broad answer, in actual fact, it means the investor is a responsible one, so you should probably listen to them.
Before continuing, please heed the following advise
Mentality – Your mentality going into this needs to be calibrated correctly, what we mean by that is, you need to ditch the ‘Get rich quick/Fast money/Lottery ticket/short term’ mentality.
At the very least, one should adopt a medium – long term mindset, so think in terms of months (minimum), not weeks and CERTAINLY not days.
Name your price – There needs to be a goal that you’re aiming for, whether that is a percentage gain or a figure. For example an overall increase of 20% on your investment, or an increase of a $1000.
Conversely, the same needs to be applied in the opposite direction, there needs to be a percentage or number set at which one pulls out, in trading, this is called a stop loss. This is seen as damage limitation and prevents your investment from going completely down the drain in the event of a cataclysmic economic event like a financial crisis, which could be due any minute (don’t say that too loud though).
Stop loss – A buy/sell order placed at a specific price to counterattack price fluctuation in the opposite direction, essentially damage limitation
And finally…………The answer to the question!
Percentage of your salary
The amount of money you should invest is however much you’re able to invest without worrying about it, a good place to start with is 10% of your salary, and potentially repeat this every month if you want to build on it, this way it should not affect anyone’s lifestyle. Investing 10% of your salary, ideally will allow emotional detachment as it is not a huge amount, so worst case and the project tanks, it is not a devastating loss that will cause anyone to lose sleep.
Discipline is key
Once the plan is underway, strict discipline must be employed, regardless of the crypto project potentially sky rocketing or it going in the opposite direction. In the event a project rockets and you ‘FOMO’ (see below for explanation) in more, your emotions will no longer be detached and any price swing will cause reflex responses such as further buys or sells, and unless you are experienced, it will ultimately cause the loss of your investment, there is an abundance of casualties that can confirm this as the market is ruthless in this regard.
FOMO (fear of missing out) – Impulsively purchasing stock or crypto which is rocketing as one doesn’t want to miss out on further gains. (tip – Don’t do this, people who fomo often do this when a stock/crypto has run out of steam i.e the wrong time)
It’s like in those movies, where a group of people are trying to escape from a cave, and there is one expert in the group who has formed a solid plan, that if followed has a good probability of escape, however during the actual escape, someone (lets call him Jeff) gets scared/emotional, deviates from the plan and gets everyone else killed. Don’t be Jeff.
- Calibrate your mind
- Set a target
- Start with 10% of your salary
- Stay disciplined and execute the plan
Please comment below if you have any questions or queries, all feedback is welcome!