Investing in stocks can be a great way to make your money grow. While there’s no guarantee you’ll always ‘win’, as stocks do drop if you set a long-term strategy, time is on your side. Investing in stocks gives you part ownership in companies, allowing you to increase your earnings when they do well.
Investing in stocks often sounds overwhelming or like it’s for expert investors, but anyone can start. Here are the top stock tips for beginners.
Think about how you want to trade stocks. Will you set it and forget it or watch the market and trade daily? Beginners do best with the set-it-and-forget-it strategy. Watching the market and making daily trades takes a lot of expertise. Commit to the stocks you purchase and let your investments ride the wave.
You need a broker to help you invest in stocks, but there are a few ways to do it.
Regular investments are the best way to grow your portfolio, but you need to know how much you can invest. Go over your budget and determine how much you can contribute regularly. Think of it like a 401K. If you contribute regularly, your balance will increase and you’ll have a better chance of higher earnings.
When you invest regularly, you focus less on the stock price and more on growing your portfolio. If you invest in regular intervals, you take advantage of dollar-cost averaging. You purchase stocks in regular intervals despite the price. Some days the price may be low, the others it may be high, but it averages out to a lower price overall than if you invested one lump sum one time.
Don’t ‘stalk’ your portfolio. It’s easy to worry about it since it’s your money, but watching it every day only leads to emotional trading. If the stock market crashes or just your stock has a rough day, your first instinct is to sell. Then what? You’re left with nothing.
Instead, let it go, ride it out and see what happens. If you can’t leave your portfolio alone, don’t check the market often or leave your trades to a professional broker who can help you avoid emotional trading.
Stocks can be risky, there’s no doubting it so don’t put all your eggs in one basket. Diversify your portfolio as much as possible. When you invest in stocks, choose stocks in different industries and even different companies within each industry.
It’s a good idea to mix in other investments in your portfolio too including ETFs, bonds, and real estate investment trusts. Diversifying your portfolio helps offset a total loss. If one industry performs poorly, another may do well, offsetting the loss.
Think about why you’re investing in stocks. Set short-term, mid-term, and long-term goals. This helps you create the right portfolio. Whether you use a robo-advisor or a traditional broker, your goals will determine what investments they suggest.
Short-term goals are financial goals you have for the next one to two years; mid-term should be achieved in the next 3 to 5 years, and long-term goals are any goals longer than five years. For example, a short-term goal may be to replace the floors in your home in the next year or two; a mid-term goal may be to pay for your child’s college education, and long-term could be retirement.
Your goals determine the riskiness of your portfolio. You’ll need to be more conservative with short-term goals since there’s little time for the portfolio to bounce back, but long-term goals can have a more aggressive approach.
Even though investing in stocks should be a long-term investment, you’ll want to monitor (and change) your allocations as you get closer to your goals. For example, if you’re 25 years old now you can take more risks – investing in more stocks. As you get closer to retirement, though, you should adjust your allocation to make it less risky, leaving some room for growth, but not so much that you stand to lose everything and not have time to make it up.
The key is to invest in stocks early, let your portfolio grow, and enjoy your earnings. Don’t obsess about how the portfolio is performing daily, but look at it from a long-term perspective.
Let professionals help you if you aren’t sure what you’re doing or worry about emotional investing. At the least, choose an affordable robo-advisor that does almost everything for you except fund your account. Set up your account to regularly contribute and you’ll create a well-rounded portfolio to carry you into your financial goals.