Investing for Dummies – UK. Levene Tony
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abroad if you have close family in distant lands, any domestic problem that insurance wouldn’t cover, a major repair to a car over and above an insurance settlement or a substantial vet’s bill not covered by insurance.
Here are some additional snippets from experience for you to keep in mind:
✔ Don’t put your emergency-fund money in an account that offers a higher rate of interest in return for restricted access, such as not being able to get hold of your money for five years. The problems and penalties associated with getting your cash on short notice outweigh any extra-earning advantages.
✔ An emergency cash reserve serves as reassurance so you can more easily ride out investment bad times such as a fall in the value of shares.
✔ Monitor your potential emergency cash needs on a regular basis. They can shrink but are more likely to expand.
✔ Know that you may not be able to access some investments in an emergency. Don’t be put in a position where you’re forced to sell.
✔ Know that your credit card can be a temporary lifeline, giving you breathing space to reorganise longer-term investments when necessary. The key word here is ‘temporary’ – maybe up to three or four months. Using plastic for long-term borrowing is a certain road to financial ruin.
Chapter 3
Recognising What Makes an Investor Tick
In This Chapter
▶ Understanding components of investor psychology
▶ Looking at the standoff between greed and fear
▶ Investing as a casino wheel or sensible strategy
▶ Considering money-making routes for the cautious
Needlework and carpentry are among the skills where you need a firm hand and a good eye as well as technical ability. You need technical ability in investing too. But as well as a firm hand and a good eye, you need an understanding of investor psychology – how you tick and how the other investors who make up the market tick as well. This chapter looks at psychology – but don’t worry, you don’t have to read huge tomes or understand long words.
Good investors know all about the mechanics of buying and selling stocks and shares. They know how to tell a positive company balance sheet from a looming disaster. And they understand that a relationship exists between interest rates, inflation and what they end up earning on their investment cash.
Great investors do all that and something more, something far more vital. It doesn’t involve learning how to interpret share earnings forecasts, how to understand credit risks or how to evaluate the future of small companies. What it involves is far more basic – and far more essential.
This extra something is investor psychology, and it’s what this chapter is all about. In this chapter, I tell you what investor psychology actually is and explain some specific emotions that make an investor tick. In addition, I explain that although gambling and investing share certain similar characteristics, they’re actually very different ventures. And for those of you whose emotions range from cautious to scared stiff, I provide some starting-point investing advice.
Investor psychology comes in two parts – the psychology of the marketplace and the psychology of the individual. This section helps you understand each part – and their interaction, because you can’t define where one stops and the other starts.
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