Before entering into financial markets, decision about the ‘comfort zone’ pertaining to specific portfolios and holdings, is the core issue for both long-term investors and short-term traders. Understanding the boundaries and limitations of your comfort zone, help a lot to maintain appropriate portfolios that may not disturb you and make you prosperous. Following are tips that assist you to define your comfort zone and point out the boundaries.
What ‘Comfort Zone’ is?
For a layman, ‘Comfort Zone’ means to have an investment portfolio which is the best of available opportunities and hence appropriate at that time.
Advantages of Comfort Zone:
Many favorable reasons support you in development of Comfort Zone. Some of them are as under:
- Ratio of risk can be identified.
- Small profit potentials guides and inspires you to earn as much possible from your investments.
- Being informed about your risk area, you would be comfortable in taking trade decisions.
- Marginal and borderline trade deals can be avoided.
- Risk can be avoided by the one who is more satisfied.
- Emotional trade decisions can be handled easily.
Settling Into Your Comfort Zone:
To maintain your comfort zone over the long period, it is strongly recommended to review once in a year your investment holdings. It will greatly help you in arriving at a better decision. Sell those stocks (even at loss) from your holdings, which do not show any cut rather to hold them only for tax reasons as it makes no sense at all. By doing so, you can release your money for other healthy investments that can increase your portfolio worth. Conducting your own market surveys and portfolio analysis is supposed to be more suitable instead of only relying on general market tips.
Comfort Zone And Trading:
Following is the check-list that greatly helps the investors.
- What’s the probability of earning a profit?
- Is this an appropriate time to invest?
- Is the security fairly priced?
- How much capital is at risk?
- Is it possible this trade can result in a margin call?
- Is this a good entry point?
- How much profit do I expect to earn?
Long-Term Investor or Trader:
Majority of the investors use along-only approach and invest in collectibles, bonds, stocks & real estate in spite of inconsistent market situations. This approach is appreciable if your investment selection skills are high rated.
You must be vigilant and need to have diversified skills e.g. (i) how options work (ii) how it can be utilized for hedging, if you prefer to trade in your own portfolio.
The instable market position due to expected future downfall of the company or rapid price fluctuations must be kept in mind by the long-term investors. Extra vigilance is required to handle these risky and would-be disastrous situations.
Your Comfort Zone principally depends upon the way you invest. For instance, Swing Traders with a long term commitments maintain its positions longer in the market then Day Traders. On the other hand, number of investors has instable record, but many people have highly positive speculations for them.
Your relevant class or category in the market is also an important deciding factor. Long-term investors are least bother about market timings (boom, recessions etc.) and stay calm. Although such trades are risky but normally acceptable to the potential investors as the same are rewarding.
It’s a dream of every investor to be a full-time professional trader. Keep in mind that everyone may not be a successful full-time trader. It is falsely supposed to be an attractive subway to prosperity and riches. This is a universal rule of every kind of business that one must be skilled, experienced and well educated in the field. A Rule of Thumb!! YOU WON’T BE COMFORTABLE, IF YOU ARE NOT PROFITABLE.
Based on the parameters elaborated above, you can find your comfort zone. Once you find it, you are in a secure position to decide about your investment decisions.
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