When you start investing in stocks and search the web for tips and tricks, one of the most common sentences you will stumble upon is “You cannot time the market.”. Although this statement means that nobody can predict the stock market, you can still follow these simple investing tips and start building your wealth.
1) Be rational, not emotional
Like you see inflows and outflows of cash when managing your personal finances, the stock market too has ups and downs. The stock market’s volatility is not only subject to the corporations’ performances but also impacted by political, economical, social, technological, legal, environmental, and global circumstances. Which is why it is important to expect fluctuations in the stock market. Hence, don’t panic and sell your stocks when they decrease or the stock market is red, instead, wait it out until your stocks turn more positive/green. Still, be aware if you see that a particular stock you bought only decreases, that it might be better to sell the stock you own for a cheaper price than you initially bought.
2) Budget your investments
Like you should set aside savings, set aside money that you can use for investments. Only invest money you don’t need in the next 6 months/for the foreseeable future. This way you don’t have to rely on immediate stock market returns and have money left for financial emergencies.
3) Invest for the long-term
Don’t expect your stocks to skyrocket in a short period. Significant high returns are rare and difficult to achieve unless you invest in high growth stocks, these stocks are only advisable though if you have enough money saved, if you are familiar with corporate finance, and if you are willing to take risks. Additionally, be aware that high growth stocks are usually more expensive and more volatile.
4) Buy stocks regularly
What newbie stock investors often fail to understand is that regular investments are necessary to build wealth. One cannot grow wealth in a short period from owning one single stock. Thus decide on the amount you can afford to invest on a monthly basis. If the amount you set aside monthly isn’t enough for you to purchase your desired stock, set stock savings aside and then invest into a stock or multiple stocks once you have enough saved.
5) Use automated trading systems
Once you have decided which stocks you want to invest in, use an automated trading system that is integrated in stock trading platforms i.e. Degiro and Robinhood both give users the possibilities to automate trading. You still get to decide which stocks you buy but instead of physically entering the purchase every time, you automate which stocks you buy and the stock price i.e. automatically buy x amount of stocks at x amount stock price, this way you don’t have to follow the stock market every minute. Moreover, you still decide how much money you transfer to the platform and only the available amount can be spent through the automated trading system, if you only transfer €100 to the platform, only €100 will be available for the purchase of stocks. The good thing about this is that you can set a purchase amount limit so that no automatic transactions are made through your debit or credit card and only the money is used that you have available. Additionally, of course, you can also automate at what price you sell your stocks, for example, if your stocks decrease by a certain percentage, you can automate the sale without having to worry about a significant loss.
6) Invest in S&P 500 index funds
Index funds are investment funds that represent a basket of stocks that mirror the performance of companies through a market index. The S&P 500 Index accounts for almost 80% of the market value of the U.S. equities market (Investopedia). You might be already familiar with: Facebook (FB), Amazon (AMZN), Apple (AAPL), Alphabet Inc. Class C Shares (GOOG), Alphabet Inc. Class A Shares (GOOGL), or Berkshire Hathaway Inc. (BRK.B), these stocks belong to the top 10 S&P 500 stocks by index weight. When buying stocks from the index you would invest in the largest profitable stocks.
7) Invest more when the stock market plunges
When your investment strategy is a long-term approach, buy more stocks if there is a significant dip in the market, or a stock market crash, this is like buying stocks at a “sale price”, only though if you choose your stocks wisely. However, do consider that the stock market can be highly volatile after a stock market crash and it is difficult to predict how long they last or how much more the market decreases. Nevertheless, if you have been eying particular stocks for a longer period already, a drop can be a good time to invest.
8) Research and learn
Analyzing corporations can be time-consuming if you don’t have a basic understanding of financial statements. However, studying a corporation’s current performance and future plans can lead to higher returns, especially if your investment strategy is to invest in individual stocks. Don’t be discouraged if you don’t understand everything, search the web, analyze your desired stocks, and read/watch the news. Also, as you start your investing journey, remember that you can always sell your stocks and reinvest the money in stocks that perform better.
Tips on How to Prepare for a Stock Market Crash – Investing when the stock market is volatile.
Why You Should Know About ETFs – Invest in the stock market and avoid the risk from investing in individual stocks.
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