There’s no doubt that investing in the stock market seems intimidating at first, especially for a beginner with no prior knowledge. That said, with enough patience and measured decision-making, you could be rewarded handsomely.
First, let’s admit that you can earn a lot of money through the stock market. However, it’s not generally an easy or quick process.
In fact, The Simple Dollars adds that investors will lose money before even starting to see growth in their investments.
That’s why it’s really important to be prepared before entering the stock market. It also helps to set expectations realistically about investing.
Today, we’re going to share a few tips that can help a beginner make the right decision during his first forays into the stock market. Here you go:
1. Only invest what you can afford to lose
Stock investing comes with an endless list of risks — and losing money will always be a part of it. That’s why you shouldn’t invest money that you can’t afford to lose.
One of the basic things that beginners need to know before stepping into the stock market is to only invest surplus cash. That way, if stocks don’t perform well, the damage wouldn’t be as huge as literally losing your entire savings.
If you’re a small business owner hoping to gain more capital through investment, for instance, you have to make sure that you have spare cash for that gamble first. Don’t invest all or most of your existing capital in the attempt!
Experts recommend a sound investment plan and a good bit of extra cash to prevent your small business from getting affected in case the stock market performs badly. They also recommend patience, as stock investments tend to see the best returns in the long term.
For example, when the owners of the Fridge Repair Singapore decided to invest in the stock market, they didn’t jump into it immediately. Instead, they formed a game plan and started setting aside money specifically for the foray first.
This planning and patience paid off. They did note that they barely made money on their investments in the first year or so, but since they were willing to wait it out, their investments had time to mature.
And because they invested money that was distinct from their business capital, they never worried about losses affecting their business’s daily operations. That was how they could afford to be patient in waiting for returns.
2. Don’t jump blindly into the stock market
If you’ve ever heard your friends talk about how their savings tripled in less than a month after investing, chances are that’s only half of the story. You can lose money on the stock market even faster than that!
That’s why you shouldn’t just believe everything you hear about people winning in stocks. Do your own research about the stock market and companies before risking money.
If you enter the stock market without educating yourself about it, there’s a really big chance that you’re going to be disappointed by the results. In fact, it’s only through educating yourself first that you can figure out how to set expectations!
3. Spread out your investments
Knowing the endless risks that come with investing in the stock market, a wise investor would make decisions that would soften the impact in the event of stocks going sour.
Among the most common strategies is to invest in as many different companies as possible. Spreading out investment in this and other ways is commonly known as diversifying your portfolio.
If your investment is scattered across different companies, the majority of it will be safe in case one of these stocks doesn’t perform well.
However, don’t over-diversify too early in the game because it’d be difficult to see any proper growth in your stocks that way.
4. Avoid herd mentality
It’s really common for people to invest in the same company just because their friends and business partners are doing so.
If you want to make sure that you’re making a smart decision as an investor, however, never invest in stock solely based on your friend’s recommendation.
Taking note of your friend’s recommendation isn’t a bad thing, but you might want to do a bit of research on that company to see if they’re capable of meeting your long-term goals as a newbie investor.
5. Have realistic expectations
While you should obviously hope for your stocks to do well, setting your expectations unrealistically will only lead to disappointment.
If today was a great day for your stocks, it might be a completely different story tomorrow. Your stock might have grown exponentially today, but you can never know what’s going to happen in the next few days.
It’s worth noting that stock investments come with great risks. As an investor, it’s best to be prepared for the possibility that things aren’t always going to end up the way you envisioned them.
Anyway, that’s it for our list of tips that newbies in the stock market should take note of. We hope that this also helped those who’ve always wanted to invest but just couldn’t find the right time.
If you know of other tips for beginners that weren’t included in our list, share them with us! We’d love to hear the opinion of experienced investors on what newbies should know about the stock market.