Investing in the stock market can be scary, particularly if you are new to the game. The reason for this is simple: investing involves money…YOUR money. There may be no way to erase this fear completely, but there is a way to assuage it: learn the rules before you suit up to play.
According to the U.S. government, there are several steps you should take as a new investor. In part, these include:
Learning About the Industry:
Perusing financial websites, reading finance magazines, and watching investment shows can all be overwhelming for the new investor. This is especially true if you aren’t good with numbers or finance. But, these outlets provide invaluable insight from industry professionals. Use them and learn from them. Even if you plan on hiring a broker or advisor to do the dirty work, it is still in your best interest to know the industry. It is your money, after all.
Using Your Employer:
If you work for a company that matches a percentage of the money you put in your retirement plan, take advantage of this. The percentage they match may seem low, but it adds up fast. Not taking advantage of this opportunity is essentially like saying “no thanks” to a barrel of free cash.
Knowing the Difference Between Investment Vehicles:
Stocks, bonds, money market accounts, and mutual funds are all things you can invest in. However, the commonalities often end there. Some investment vehicles provide large returns, some provide small returns. Some investment vehicles pay out regularly, others pay out at the end of the investment period. Some have tax ramifications, some have tax benefits. And some are high risk, while others involve very little risk. Knowing the benefits and drawbacks of each investment vehicle will help you decide which one best fits your financial goals and needs.
The Stock Market
There may be several investment opportunities for you to choose from, but the stock market often is the most attractive because it offers the highest financial reward. If this is the route you plan on taking, it’s important to remember a few key things. According to Money Magazine, these include:
Invest for the Long Run:
Some people prefer to trade stocks like it’s their day job; but it’s smarter to buy and hold onto good stocks than it is to trade as rapidly as possible. It also requires much less time and focus.
Invest in Variety:
Investing all of your money in the same industry is setting yourself up for failure in the event that industry takes a hit. Thus, if you opt to invest in soy beans, also invest in something totally different, like a biomedical company.
Heed the Stock, Not the Market:
A strong market and a strong individual stock aren’t directly correlated; the market could flourish while your stock plummets; or the market could tank while your stock rises.
The Past Doesn’t Predict the Future:
A stock that has done well in the past isn’t guaranteed to do well in the future, just as a stock that has failed in the past isn’t guaranteed to fail in the future. The stock market is fickle, and all kinds of variables can determine how well a stock does or does not do.
Ultimately, keep in mind that the stock market is a gamble, but knowing your stuff helps better your odds. And, of course, remember these words from billionaire Warren Buffet: “Rule number 1: Never lose money. Rule number 2: Don’t forget rule number 1.”
If only it were that easy.
Jonathan Hindenberg is a freelance writer specializing in finance, investment, wealth management, stocks and bonds, securities litigation, financial regulation, taxation and other related areas; readers potentially interested in joining the complex world of finance should view the financial analyst jobs with moneyjobs.com.
Image credit goes to doris night.