Investing in the stock market isn’t something that should be taken lightly. It’s a tough world that you need to understand inside and out before you dive in and take the plunge. While professional stock market investors may make it look easy, it can be highly daunting for rookies who are starting out. If you’re looking to begin your journey by investing in the stock market, then this expert guide will give you powerful stock market investing tips that you shouldn’t ignore. Let’s get started.
Stock Market Investing Tips For Beginners
Know The Basics First
Before you begin investing your money, you should take the time to learn the basics of the stock market and any individual securities that the market is composed of. If you look at the stock market in a different way, it’s not a stock market rather than a market of stocks, and if you’re not purchasing from the ETF or exchange traded fund, then generally your focus will be more on targeting individual securities instead of the whole market. Before investing in the stock market here’s some key areas that you should become familiar with first:
- Different Investment Accounts – Investment accounts are different across the board. Generally, cash accounts are very common amongst investors, however for some types of trades a margin account is required. If a margin account is required of you, it’s important to understand the calculations of a margin account and the overall differences in maintenance and the initial margin requirements.
- Order Types Of The Stock Market – With the stock market you’ll come across many order types. It’s important to know what each order type means. For example: limit order, market orders, stop limit orders, stop market orders, trailing stop loss orders, plus others that are commonly used by different investors.
- Stock Selection and Timing Methods – You should also consider learning the ways technical and fundamental analyses are performed. You should also consider where each one is better suited in your overall stock market strategy and how they differ from one another
- Financial Definitions and Metrics – It’s also important to understand metric definitions like EPS/earnings per share, ROE/return on equity, CAGR/compound annual growth rate, and P/E ratio. In knowing these key metrics and their definitions, you have the potential and ability to easily compare the different companies for the best investment options.
When you think about it, knowledge is power and without knowledge you don’t have the power to overcome or see the risks involved when investing in the stock market.
Set Long Term Goals
When investing in the stock market it’s also a good idea to set long term goals. If you don’t have a plan in place or goals then you’re investing blind. When setting long term goals here’s some things to think about:
- Will you need your cash back within a year, in five years or much longer?
- What is the goal of investing? Are you saving for college expenses, retirement, a home?
- Why are you looking to invest in the stock market in the first place?
The stock market isn’t a place for short term goals due to the volatility that is generally seen. Because of this you won’t have complete certainty that your capital will be available when you need it, especially with short term goals.
When you’ve worked out how much capital you’ll need for your future goal, you then need to calculate how much you should invest and the return you need from your investment over the timeframe of your goal.
It’s important to remember that your portfolio growth depends on:
- How much you invest
- The net annual earnings on your capital
- The timeframe of your investment.
If you have a very long goal 10-20 years, it’s important to consider investing and saving early on.
Avoid Holding On To Losing Stocks
Investors who make money from the stock market when investing tend to be decisive and know when it’s time to sell and buy. As suggested in point one, it’s important to learn all you can about the stock market before you begin investing money.
By being knowledgeable, you can then make quick decisions throughout your stock market journey. If you find that your stocks are continuing to drop in value and you’re losing money, think about whether it’s worth cutting your loses.
The mistake many people make is holding on to depreciating stocks, hoping that they will make them a decent return down the track. However this can lead to trouble and can lead you missing out on more money as the value goes down.
Instead consider your options to decide whether you cut your losses while you have something to gain, or hold on to them and watch them hit rock bottom. Use this investment curve as a learning process and a mistake that you will look at avoiding in the future.
When it comes to the stock market, there’s a lot involved, however if you take these tips into consideration you’ll be able to help improve your experience of investing in the stock market. Are you ready to invest in the stock market?