Investing in the stock market provides you with the opportunity to make life-changing amounts of money. Now, that money could come your way in a matter of weeks or years, but you have the chance to start making your money work for you and set yourself up for the future.
That said, you could also lose life-changing amounts of money just as quickly if you aren’t careful. We’re going to talk you through some investing tips for beginners, giving you a little insight into the do’s and don’ts of the market while you get started.
Hopefully, you can leave this article with a deeper understanding of the direction you’d like to take with your investments.
Investing Tips for the Beginner
We’re going to try and cover a broad range of issues without getting too specific in this article. If you’re interested in any of the points below, it’s certainly wise to add a little depth to your understanding with further reading.
Investing can be extremely profitable if you put the time, research, and energy into making wise decisions. At the same time, there are some general concepts that you should understand going into the market. Those are the concepts we’ll discuss today.
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Understand the Fragility and Stability of the Market
People often paint investing in the stock market as something that is an absolutely sure bet over time.
That’s true to some degree. Generally, the stock market grows and grows in the face of periodic setbacks, then, can be devastating. So, you might have $10,000 invested in one piece of stock, only to find that it plummets overnight and is valued at $3,000.
That could be a devastating loss to your financial situation if you look only at the short term. It’s important to look at the context of that dip and ask yourself if that share will come back up later.
Odds are, the market will correct itself and all of that value will come back to the share. That is if the company you’ve invested in is a good one.
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Appreciate the Risk You Take
There’s not really a way to pinpoint the specific risk of a stock. There isn’t a metric or number that tells you “this stock is a 9.96 risk,” or anything like that.
You can, however, look at a company’s history in terms of value. Most trading sites provide you with detailed charts that graphically show a company’s trajectory.
If you see a ten year period of continuous growth with few major setbacks, you can have some confidence that the risk is low. On the other hand, you might see that a particular stock is having an excellent day and throw some money into it.
That’s probably risky, and we’ll explore that idea in the next bullet.
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Penny Stocks
When a stock goes from $.72 to $4.03 overnight, you’ll probably notice your brain start ticking. You’ll think, “if I would have invested all of my money into that stock yesterday morning, I would have $40,000 today.”
Those are the kinds of thoughts that get you into some very deep water. There will always be stocks that skyrocket in exciting moments. Take note of what happens to those shares in the following days, though.
Often times the share prices go up in a moment of mass excitement, only to plummet as investors sell to try and reap the returns before the stock drops.
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Day Trading
One way to capitalize on the quick ups and downs of the market is day trading. Day trading is essentially the process of buying and selling stock as it dips and jumps throughout the day.
Many people make six figures day trading, and there’s certainly a method to the madness. A solid understanding of the market and its factors could provide you with the grounds for success.
That said, you have to understand that some days you’ll lose and some days you’ll win big.
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Diversify Your Portfolio
It’s important to invest in a variety of companies from different industries and with different degrees of risk.
The bulk of your investment portfolio should be placed in low-risk investments. A smaller portion should be held in mid-range risk investments, and the smallest portion should be used for high-risk stocks.
That way, you don’t blow all of your money in a questionable investment, and the odds of your money growing generally are much higher. It’s tempting to bet large sums of money on promising penny stocks, we know, but that’s a fast track to bankruptcy.
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Educate Yourself
Trading in the stock market is something that people have been doing for a very long time, and there’s a lot of information out there about the process.
Try something like forex training online to get a deeper insight into the actual nuts and bolts of trading. Each educational process you undergo is an investment in itself and will help you to earn more money.
Additionally, there are a lot of people online who just trade all day and document their process on Youtube or on their personal website. These people have a vested interest in providing valuable content, so it’s a smart move to do some digging and find people you like.
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Scale Up Over Time
Before you actually start to move money around, it might be smart to create a plan for yourself when it comes to investing. Try to make a 3-5 year plan of how much money you’d like to put in and how much you’d like to get in returns.
Having those figures established will help to temper the investment process. In other words, you won’t put too much money in or make decisions that are too risky. If you behave in response to your goals, you’ll find that your investments might be a little wiser.
Trying to Increase Your Wealth?
Hopefully, these investing tips were useful to you as you get started. There’s a lot more to learn, though, and we’re here to give you the resources you need.
Interesting Related Article: “A Guide for Investing Online“