When investing in a stock it is easy to become distracted and lose focus. Maybe your stock has been going down recently and you are afraid of losing any more money. Maybe you have found another stock you are interested in buying, but you need to sell your other stock first. Maybe you don't like the ups and downs associated with investing in an individual stock. While all of these scenarios are natural feelings, you need to go back to the reason you first invested in a stock and ask yourself these 5 questions.
- Is the money I invested "extra" money that I can afford to lose or at least hold on to through the rough times?
- Do I have additional money to invest if another opportunity arises or am I locked into one stock?
- Would I still buy the stock today?
- Am I able to tolerate the volatile nature of individual stocks or should I consider investing in something that has less volatile price movements?
- What do I hope to accomplish through investing?
If you are investing money you are going to need soon, you should not be buying stock. Stocks can be very volatile, especially in the short term, so only risk money you can live without. Secondly, make sure you do not overextend yourself in one stock. It may be a great stock, but unforeseen events happen all the time and it is bummer when it happens to your stock. If you see an opportunity to purchase another stock, there is no need to rush. If you think a stock is a good buy today, chances are it will still be a good buy a few weeks or a few months later.
If your stock has been declining recently, then you need to determine whether something has changed fundamentally in your stock. It may just be a short term price fluctuation rather than the financial condition of the stock. If you bought the stock before it went down and nothing fundamentally has changed, then why would you sell the stock now? Some individuals may not be well suited for investing in individual stocks. At some point, one of your stocks will go down significantly. How will you respond to that? If you can't handle the volatility, consider investing in mutual funds or something with less daily price movements.
Finally, if you are investing for retirement or for a college education, don't worry about checking your stocks every day. Over time, stocks tend to reflect the financial strength of the company. However, many factors can influence the day to day stock price. Stay focused and remember why you are investing.
