Part 2
As each of us enters different stages of life, our changing family status and objectives, incomes, expenses and living standards shape our investment strategy.
By having a clear idea of what you want your investment to accomplish, you'll be able to put your money to work more productively.
Investing is generally defined as the conversion of risk-free assets into risky ones with prospects of greater return.
Every investment has a certain amount of risk associated with it. You can minimize risk, if you are able to understand the different characteristics of the various investments and build your portfolio accordingly.
Given the existence of risk, why invest at all?
Because historically, the existence of greater risk is commensurate with greater rewards for investors.
You are almost certain to pick a bad investment sometime. The secret then is to cut your loss as soon as possible.
Unfortunately, most people find this very difficult to do. No one likes to think that he has made a mistake and there is a big temptation to hold on and hope for better days.
But there is almost always a time when an investment starts to turn sour that you can get out with only a small loss.
If you hold on you could be on the losing side for many years and then lose even more money in the end.
Having the courage to admit that you were wrong is an essential technique of successful investment as well as in other aspects of life.
A Swiss banker put it rather well:
"If you are losing a tug-of-war with a lion, give him the rope before he gets your arm ...
You can always buy a new rope!"
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