Before investing in the stock market, it is best for you to first determine how much you want to invest, what your risk tolerance is, and how you are going to go about choosing companies to invest in – this is called an investment strategy.
Many people avoid learning about the stock market because they don’t see any point to this type of investment. They think that if they invest in the stock market that they’ll lose everything, unless they happen to be very lucky. This is unfortunate, as all you need to be a successful stock market investor is a little education. Read on for some tips about how to define an investment strategy and set some investment goals for your stock market investing.
Cultivating the discipline and focus to invest money regularly is a lot easier if you have defined your investment strategy. Establish separate accounts for specific goals like college savings and retirement so you can tailor your choice of investment vehicles accordingly. Your state’s 529 Plan might be a great option for educational investments. An aggressive stock portfolio could be advantageous for a young person with retirement decades away; but a middle-aged person would want to consider a more moderate strategy, then look to change to less volatile options like bonds or certificates of deposit as retirement nears.
One of the best things you can do to stay ahead of the curve is talk with a stock expert. Stockbrokers or friends who succeed with stocks are good people to speak with, as they often know which companies are the best to invest in. Don’t rely on the internet for advice – most who offer specific strategies are trying to make money from you through webinars, ebooks, affiliate links or advertisements.
When picking stocks, find a strategy you enjoy and stick with it. For instance, you may choose to ignore the market’s behavior for the most part and focus only on a company’s earnings potential. Once you settle on a personal set of rules, you can seek out prominent investors or financial gurus who share your philosophy, and you can learn from them.
Figure out if you want to use a brokerage to purchase stocks, or if you want to buy right from a Direct Investment Plan or Dividend Reinvestment plan. If you do not think you can afford a brokerage, there are many discount brokerages available, and online brokers are becoming much easier and more reliable. Just be aware that some companies do not offer a Direct Investment Plan.
It is important that you never think of investing as a hobby. It is really an extremely competitive business, and if you keep that in mind you will be able to have a more helpful outlook. You need to deeply understand your profits and losses along with the companies you are investing in.
Do not let the stock market scare you. Even if the swings of the markets and the turbulence reported on the news gives you pause, consider dividend stocks as a conservative safe haven. Their consistent yields are often better than bonds, and companies with a long history of paying out dividends are just as safe an investment as bonds.
After reading this article, you should understand a little more about how the stock market works and how to invest in it. Now that you have some knowledge, you can safely make an investment strategy and begin to invest some of your money – maybe you will double or triple your investment! Soon everyone else will want to know what made you so lucky, and you can honestly tell them that it wasn’t just luck.
For more on investment strategies, see our article Making an Investment Strategy for the Stock Market.