Investing, for some, might be just a hobby, but it can sure be an expensive one. Yet, if you’re like many of us, you know there are opportunities for putting your money to work and having it grow. Nonetheless, investing, like any business (and it is a business) has its own unique challenges. Below are several tips and techniques which will help you learn how to invest and what good investments are:
- Pursue a Disciplined Approach: This is a key to successful stock market investing.
- Diversify: Diversify among your stock market investments as well as among various asset classes (such as bonds, real estate, international stocks and bonds, etc.).
- Avoid Large Losses: Protecting your principal from significant investing losses is fundamental to generating an attractive average return over the long haul. Use asset allocation and find a disciplined approach to monitoring your investments and knowing when to cut your losses or sell out to lock in profits.
- Avoid Chasing Stock Market Tips: Unless you have a solid discipline for knowing when to exit these investments on a timely basis, don’t do it. Don’t get caught in the trap of allowing a large loss on the investment and then rationalizing it to yourself that you are a long term “buy and hold†investor.
A highly successful investing venture may have a return of 10%. To get a return of 10% you are going to need to have a wide range of investment vehicles. This is called diversification. Many investors will find a single stock or corporation and hold many shares of the same stock. The problem is that if that stock does not do well you have no other investments which can balance that loss with growth. To make money in the market you should have at least 20 stocks in different industries and businesses. There are financial professionals and brokers who will advise investors to hold only 6 stocks in different companies. You can make a profit with being less diverse if you have experience, make great choices, and time the investment correctly. The problem is most people are not perfect investors. It makes more sense, especially for casual investors, to be as diversified as possible.
Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in hopes of a rebound. If an investor doesn’t know when it’s time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless.
Many people think stock market investing is all about getting good tips. It is easy to get sucked into the game of chasing stock market tips. The sources of hot tips are plentiful … your brother-in-law, a colleague at work, even the taxi driver may have stock market tips. During the tech stock investing craze several years ago, everyone seemed to have great stock market buying tips. When you get caught up in the game and the excitement of the hunt, you can easily bypass the fundamentals of good stock market investing.
Trading stocks is a high-risk, high-profit venture. Dabbling in the stock market half-cocked is suicide. Take your time. Study, research and be patient. After all, it’s your money, so it’s your loss.
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