At first, investing can be really overwhelming. But trust me on this one, it is worth it.
In today’s article, I’ll try to go beyond what most “stock market for beginners” articles say by discussing actual things to do and not to do. This should help you to get the best out of investing as quickly as possible and to really give you a boost in your path to whatever your financial goal is.
Open A Few Brokerage Accounts
One of the first struggles for new investors is the process of picking a broker.
The easiest thing to do is to search for the lowest transaction cost broker in the beginning. However, nobody forbids you from opening more accounts if they are at no cost and then seeing which broker best fits your needs. You‘ll also learn a lot in the process.
If a broker charges a high fee for transactions but has a good research platform, keep a small amount there just to use the research tools.
Invest Money & Make It A Habit
Now that you have opened your brokerage account, it’s time to invest money. The best way to invest is to invest a fixed or growing monthly sum. This habit is the key to investing as it is the habit that makes you a successful investor, not the stocks you buy.
The strategy where you invest a fixed amount per month in stocks is called dollar cost averaging and it allows you to make healthy returns either if stocks go up or if stocks go down because when stock are low, you are able to buy more of them.
Buy At Least 15 Companies In The Next Two Years
As you don’t yet know much about stocks, the best thing to do is to diversify in a way that each month you buy another stock. With time, this will allow you to learn more about more stocks and better understand the market. If you have a broad portfolio of stocks from various sectors and countries, you will do well no matter which stocks you buy.
Be Ready To See Stocks Drop
We are in an 8 year bull market (stock prices rising), and stocks are three times more expensive than what they were in 2009. This means that what you buy now probably won’t lead to great long term returns, but buying stocks now will give you the necessary knowledge to understand the market, create a habit, and take advantage of the next crash. As you are a beginner, a crash is a blessing for you.
Don’t Trade Stocks & Don’t Look At Their Prices Every Day
Don’t chase news. After you hear something on the news or online, it’s usually already priced in to the stock as there are thousands of professional investors with billions under management and hundreds of quant hedge funds with billions of dollars that you will compete with. As a beginner, don’t expect that you can compete with them.
Hire A Stock, Don’t Buy It
The best way for a beginner to think of a stock is to hire it to work for you.
The only difference between hiring a business to work for you—as stocks are ownership certificates in a business—and hiring a person, is that you pay once for the stock and get the profits forever. Thus, look at current earnings, what the price to earnings ratio is, and what the potential business growth is. Learn a bit about the most important investment metrics.
When you look at stocks as a business and not as a price that goes up and down during the day, you are a real investor.
Always Look At What Can Go Wrong
Great investors are unemotional about what they do, investing is simply an assessment of the potential rewards and risks an investment opportunity offers. Therefore, be humble and always look at any investment from a perspective of the worst case scenario and how that would impact your financial well-being.
Look At Long Term Trends – The Market Is Myopic
If you see that the internet of things is exploding, or that electric cars and solar energy will take over the world in the next 10 years, find a profitable company that operates in the sector and invest a bit. Next month, invest in something else and then do the same the following month, and again. Over the next few years, you will probably hit a winner. Stick to it forever.
To understand the intricate world of investing, it takes a few years to understand what’s going or to understand the mechanics of investing. You need a few more years and a complete investment cycle to pass, bull and bear market, to give you the right psychology to profitably apply what you’ve learned.
Therefore, make sure the first 10 years are educational years. If you make money, great. If not, life is long and stocks will make you well-off if you don’t quit. So invest religiously over time.
Prepare For A Marathon, Not A Sprint
Investing isn’t something where you make money in a few days or weeks. Investing is something that allows you to protect and create wealth over your lifetime.
On average, most of the traders you hear boasting about how they made money on this or that stock lose money in the long term or at least under-perform the market. As you are a beginner and haven’t been investing for at least 15 years, think long term.
When you think long term, you are a business owner and therefore, you will probably make money in the long term as humanity grows and develops. Something that helps in the long term is establishing long term financial goals.
Establish Long-Term Financial Goals
Establishing long term financial goals helps you in finding the best way to get to those goals with certainty. If your goal is to retire at 43, you can’t risk not retiring at 43 as retiring at 57 isn’t really an option. Therefore, learn about the risks and invest so that you certainly get to where you want to get. A way to do that is to also have many other investments, not just stocks.
Have Other Investments
Stocks should be just a part of your investment/wealth creating vehicle. Too many have all their net wealth in a 401(k) or stock portfolio. Therefore think about bonds, real estate, businesses, the value of your house or mortgage in comparison to rent, etc, it all counts and the goal is that you reach your long term financial goals.
A fact that nobody selling investment products will tell you is that stocks have been going up for the past 35 years, but there is always a chance that stocks also fall for the next 35 years, be aware of that. If you keep investing month by month through ups and downs, you will reach extremely positive returns even if stocks go nowhere for the next 35 years.
Invest Only The Money You Don’t Ever Need In Stocks
Invest in stocks only the money you don’t need – ever. Investing is a bonus to life, not a guarantee. Even the best businesses can go bankrupt and you can lose your investment.
Additionally, each asset class (investment) will fall 70% or more in value at least twice in your lifetime. If you invest what you don’t have or what you need at some point in time, your lifestyle might be in jeopardy and that is something you can’t risk.
Keep Reading Investiv Daily
At Investiv Daily, I’m always discussing what is going on in the markets, analyzing investments, talking investment strategy, and also discussing the risks of investing. Therefore, to learn, just read this every day.
Find Your Own Way
Last but not least, learn from others but listen to yourself. Don’t follow the herd as the herd isn’t rich. Really look for what the best tools are to allow yourself to sleep well and get to where you want to get in life.