Here the investor would decide when to invest (or buy) and when to divest (or sell) a financial instrument, while keeping the return on investment in mind. There is no Holy Grail, which would guide you to and through these decisions.
It is safest to set in advance the parameters for investment and divestment decisions. A starting point would be an introspection and self-evaluation to access our strengths and weaknesses and also our capacity for risk. Risk here would mean reasonable and rational risk and definitely not wonton risk.
We would have to quantify the results we expect, and when those results are achieved would be the right time to invest or divest. In a sense we would be detached from the day to day fluctuations of the financial instruments, given that the larger parameters of our investment plan are intact. By which we would have to set the parameters for when to invest and when to divest.
We would now like to add another dimension to the equation. That is when an individual can and should start investing his or her hard earned resources in financial instruments.
1. The investor should have a roof over his head. That is to say that the individual's place of residence should be owned and without any mortgage.
2. The investor, should have a steady source of income to enable the provision for current expenses. Through:
- A monthly pay package; or
- A pension; or
- A passive income (through rental income from another real estate asset owned or mortgaged. Dividend income from investments in financial instruments already made. There are other sources of passive income, and we can safely conclude that this list is not exhaustive). We shall add to this list in due course.
3. The investor should have the time available every day to undertake this exercise in investment and its management. Most of all, to be able to study, do research and take action on his leads. Lets put it this way, if the investor wants to create wealth from the investment environment, he should have the knowledge to put his best foot forward.
4. The investor should have control over his emotions. Emotions like anger, sadness, happiness, fear and greed have caused much harm to investors across the globe. An investor may have the best systems in place, but if he himself is not in the best (that is balanced) frame of mind. The results too would not be the best.
Further, we have observed and can safely conclude, that errors made by investors have been caused by factors that have nothing to do with their investment environment.
There are other qualifications to help an investor decide when he is able to or would be able to start investing. We shall add to the list in due course. However, we expect that you would have enough food for thought at this stage.