8 Tips to Get Started Investing in Stocks
Investing in stocks is a great way to build wealth and grow the money the you have already earned. If you are interested in getting started investing, check out these 8 tips.
Investing is a great way to build wealth and grow the money the you have already earned. While investing may seem risky and a game for the wealthy, its actually a lot safer (and easier) than you may realize. Investing is how the rich get richer and how you can too.
You don’t have to be the next Warren Buffet to profit from a good investment - in fact you don’t even have to be right all the time to profit - you just need to be disciplined in your actions. Investing doesn’t even require fancy software and a bunch of monitors tracking every stock move. The best thing you can do is buy stock in a good company and let compound interest and time do all the work.
Here are 8 tips to get started investing in stocks.
Define your goals
Why do you want to invest? Are you saving for a house, retirement, college, financial security, second income? Knowing the WHY will help you choose the WHAT. If you are investing for a short term goal - look at index funds or ETFs (the more diversified the better). If you are investing for longer term goals (such as retirement or financial independence, a portfolio of quality growth stocks can be big winners.
Make a plan
When will you sell? If the stock price goes down to a certain point will you buy more? Whatever the plan is, stick to it! The number one reason I see investors lose money is because they panic and act on emotions and buy/sell at inopportune times. Make a plan and write it down right beside the goal/ reason to invest! You will take a lot longer to reach the goal if you do not stick to a plan
Don't obsess your investments
The worst thing you can do is check your long-term investments every day. On red days (you stocks are down) you are more likely to cut your losses (sell the stock even at a loss) and on green days (your stocks are up) you are more likely to take profits. Don’t. See “Have a plan” point below!
Time in the markets is better than timing the market
Timing the markets is a fools errand. Unless you have a crystal ball you don't know if stocks are going to go up or down. Don’t stress about buying at the top of the market - in the long term stocks go up.
Personally, I have my stocks automatically bought for me, I have my brokerage take money from my bank account every paycheck and deposit into my brokerage account. Every week I use those funds to purchase more stocks regardless if they are up or down. This way I can bring down my cost average on down days and not worry if I am buying at the top on other days. An even safer route is to do the same thing with total market funds or ETFs.
Go with what you know
Buy stocks in companies that you know and understand. Do you own a lot of Apple product? Maybe AAPL is a good investment. The companies you enjoy likely have a lot of other people enjoying them too. Plus, you have a better understanding of how they get your money (and everyone else's).
Observe the companies around you
Have you noticed that everyone is buying or searching for a hot item for the holidays? Find out if the company that makes or owns the brand is a publicly traded company.
Let’s say you see your local Target is constantly out of stock, they don’t carry a lot of basic items you are looking for etc. Perhaps it is worth doing a quick google search to see if anyone else is mentioning these issues for other locations.
Compare products and look at reviews
Consumer reviews can tell you a lot about the quality of a brand and company.
I am an avid Masala chai consumer (referred to as chai tea typically). Let’s say only 2 companies sell Masala chai. Company A sells a product that is more expensive than company B but has higher quality and better taste. Company B’s tea is 30% cheaper than company A. What company would you purchase from? The good reviews where consumers continue to buy or the company with bad reviews?
If you begin seeing a new type of technology that is beginning to be accepted by society or a lot of your friends are talking about it (think VR headsets) it might be worth looking into. Often times the first (and best) companies in a new trend are great investments. Think about Tesla, Amazon, and Microsoft - they have returned 100's to thousands of percent returns on the early investors.