There’s no denying the fact that saving money is important. However, no matter how much you save, your earnings will always be hampered by the measly interest rate. This is where investing in stocks comes in.
For those who don’t know a lot about stock investments, it can seem too much like gambling. After all, you often hear of the high risks involved. However, these high risks can also yield very high returns. If you want to make you money work for you, then you simply cannot discount stock investing.
A word of caution: it’s not a good idea to discount the risks involved. Certainly, stock investing can be very beneficial. Still, you have to follow a few key rules to make sure that you earn the rewards and avoid the pitfalls.
Here are five important tips that all new stock investors should know before jumping into the investment pool.
1.) Think Long Term
You should never invest money that you might need in the next three to five years. This is because investing in stocks takes time to bear fruit. For example, if you start investing just before the market dips, what you’ll see is a shocking loss.
The right attitude is to see this as a temporary setback. In fact, some investors take a dip in the market as the opportunity to buy the stocks they want at very low prices. Once the market regains its strength, you’ll see a significant increase in your earnings.
When it comes to stocks, you need to give it time.
2.) Look Into Mutual Funds
For a beginner, choosing the right stocks can be quite difficult. A mutual fund is a pool of investments. It is less risky and enables a properly balanced portfolio for you. Although you have to give up the chance to pick out the stocks that you think are “hot”, it also eliminates a lot of work on your part.
Mutual funds are very useful for new stock investors. You don’t have to do research (at least not all the time), and someone else will manage it for you. Once you get the hang of it, you’ll be ready to handle individual stocks.
3.) Maintain Balance
If you don’t like mutual funds and want to choose your own stocks, then you should remember that a balanced portfolio is paramount. Many new investors jump in thinking they can make a quick buck off penny stocks. There are, after all, quite a few stories that highlight these rags-to-riches fairy tales.
But as an investor, your goal should be to safeguard your money while taking a few moderate risks. That’s why you need a combination of safe stocks, mid-risk stocks, and high-risk stocks. The safe stocks are those companies that are steady in earning. Their prices might dip from time to time but they’ll always get back up so you don’t have to worry.
Mid-risk and high-risk stocks are those that can earn you more. The lower the risk, the slower the growth. High-risk stocks are very volatile. Usually, only experts can really pick out these stocks. Even then, the danger of betting on the wrong horse can be costly.
A balanced portfolio should let you experiment with stocks while still maintaining a safety net for your earnings.
4.) Do Your Research
As mentioned earlier, a lot of new investors come into the field thinking of rags-to-riches stories. They might have heard of someone who bought an obscure penny stock that turned into a real million-dollar venture.
Though penny stocks can sometimes yield serious returns, it’s not a good idea to jump into investing with nothing but hearsay. There are a lot of books, tutorials, and news reports you can read to disabuse yourself of misconceptions.
With proper research you can do better with your investment choices.
5.) Talk to Experts
Investment managers and professionals can help you significantly. The thing about experts is that you can easily ask them all the questions that are bothering you. Of course, the most important thing is to find a knowledgeable and trustworthy financial expert.
Have you invested in the stock market at all? Do you find these rules to be true and helpful? Share with us in the comment box below!