Most investors are better off with a low-cost broadly diversified stock portfolio. Since the stock market is volatile, in online trading, you have to be very vigilant. We all have heard stories about people getting rich and some going broke in the stock market. If it’s done correctly, investing in the stock market can prove to be a good alternative to real estate and other forms of investment.
Even the best players can get badly blown by the market volatility. Don’t worry, this information isn’t meant to scare you. Have a look at these 5 strategies for investing in stocks to take a safe start:
1# Handle the Basics First
Before your first investment, you must learn all the basics about the stock market. There is an old saying “it’s not stock market, it’s a market of stocks.” These are some of the areas you must be familiar with before your first purchase:
- Financial Metrics: These includes earning per share, P/E ratio, return on equity, compound annual growth rate etc. You must understand what these terms mean, how they are calculated and how to use these metrics.
- Stock Selection Methods: Fundamental analysis and technical analysis are mostly used for this purpose. You must know how they are performed and when it is best to use one.
- Order Types: Get familiar with the types of orders such as limit order, market order, stop loss and more.
- Types of Investment Accounts: Cash account is a common type of investment account but there are others too. You must know all of them and their purpose.
2# Make the Most out of Your 401k
Lots of employers are willing to offer a 401k match that’s between 3 to 6 percent. It’s free money for you! For every dollar you invest into your 401k, your employer will chip a dollar in exchange. Sounds too good to be sure, right? But it’s a mandatory restriction by the government as an incentive to encourage people to save for retirement.
The investment plan you choose must align your retirement goals. Even if there is so much time in retirement, the best time to start saving is as early as you can. You will get to enjoy an early and wealthy retirement this way.
3# Invest the Cash That You Won’t Need for the Next 5 Years
No matter what stock market strategy you adopt, keep one thing in mind. Don’t invest the cash you think you will need within 5 years. You need to be patient when it comes to stock investment. You must give your assets time. Even if the market is going down, stick to your decision. That’s the only way for your wealth to grow.
4# Limit Each Stock Trade to 10% of Your Portfolio
For buying and selling stocks of a company, you must keep it to 10 percent or less of your total investment portfolio. In other words, don’t put all your eggs in one basket. Relying on one company means you are on a ship that might sink at any time.
Do not invest all your money in a single or a few stocks. If you do that, you are banking on the success that will be halted quickly if a new competitor arrives or if there is a PR disaster.
If you still want to actively trade with a portion of your portfolio, look for a broker that offers discounts or low trade costs. Use the educational tools provided by the broker to practice trading. Use their demo account before actually diving into your market.
5# Stick to an Active Investment Plan
You must have observed this so far that active investors buy low and sell high. But that’s not easy for a beginner. A better strategy would be to make new investments from time to time. In fact, a successful investing strategy relies less on market timing and more on choosing a broad portfolio. Also, give your investment the right amount of time to grow. Plus, lots of brokers are ready to waive the minimum balance requirement if a trader makes a deposit of $100 or more on a monthly basis. Keep in mind, when it comes to investing, slow and steady wins the race.
The stock market is a complicated place, especially for novice investors. Stock prices often rise and fall for complex reasons. That is why it’s always recommended to add protection such as stop orders when investing. Apart from that, be sure the company you are buying shares from is worth it. Most of all, never put too much money in one stock.
It takes years to become well-versed on stocks. Trading platforms certainly have guides and other educational tools but that’s not enough. It’s best if you can find a mentor to seek guidance from. It may seem an unnecessary expense but it will help you big time.