When it comes to investing, the most important question is not how much the return is or how much the risk is but how much money can you afford to lose?

I’m not being negative here, this is a very down-to-earth question. It hurts me to hear about people who took out a second mortgage on their home to buy a hot-tip stock only to lose all of it. Sure, if you did this and it all works out, you’ll be a very rich man but what if it doesn’t? You will not only put your life in poverty, but also your family’s. Think about your children or grandchildren who will have to pay your debt if you can’t pay it off when you are alive. This is not called investing, it’s called betting your life. Don’t ever, ever kid yourself that you will never lose money.

Investing is to be done with extra money. EXTRA. If all the funds in your account is needed to pay for your food and accomodation, then it’s simple… do not invest. However, if you want to invest but have no extra funds, then start saving a portion of your income every month for that purpose.

Investing is a gamble to some extent and money in the stock exchange changes hand very often. The key point to consider is that money changes hands from a dumb investor to a smart investor. What sets this two types of investor apart is: one picks stocks that fit their criteria, tracks, monitor it and consider the possibility of losing; the other chooses a stock blindly based on what others are buying or based on gut feeling that it’ll be a sure-win. If the money always end up in the smart investors’ hand, then what’s so hard about doing a little homework?

To sum it up:
1) Use money that you can afford to lose
2) Start saving money to invest if you don’t have money you can afford to lose
3) Read books about investing and personal finance
4) Play with virtual trading/stock market simulation before you use real money to trade or invest.

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