Think you’re ready to start investing in the stock market? Many fortunes have been made through stock market trading. Even those investors who make modest gains are able to supplement their incomes and contribute towards new investments or retirement.
If you want to get started on the right foot, then these are the beginner tips that you need to know.
1. Buy Shares in Industries That You Understand
The stock market is divided into sectors and industries, with companies categorized by their core area of business. As a new investor, you should stick to sectors or individual industries that you have at least a fundamental understanding of. If you’re knowledgeable about Information Technology, then it would make more sense to invest in Tech than it would invest in Energy industries like Oil and Gas.
You can start to diversify your knowledge and understanding of different sectors develop.
2. Take Profits When You Can
Your stock broker wants you to reinvest. Indeed, this can grow your wealth. However, wealth in stocks is not wealth that you can use to fund a holiday, purchase a home, or spend on retirement. Withdraw profits when you can, while still allowing some freedom to make new investments. Profits can be diverted into safer investments like a certificate of deposit or a retirement account.
3. Don’t Invest What You Can’t Afford to Lose
This piece of advice is not unique to the stock market, but it’s still one that needs to be reiterated regularly…
Only ever spend what you can afford to lose. Money for stock investments should not come from loans, from long-term savings accounts, or from any source where the loss of money would have a significant financial impact. No matter how cautious you are with your stock market investments, there’s always a possibility of losing some or all of your investment.
4. Invest in Successful, Well-Established Companies
Try to invest in companies that have records of success (both in business and in the stock market), and that have strong long-term prospects. Tech is a popular sector for investment because there are a number of well-established companies that have displayed long-term success, as well as good mid-term gains for investors.
Companies like Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) are examples of long-standing tech companies that are popular investments. Even younger companies like Facebook (NASDAQ: FB) and Amazon (NASDAQ: AMZN) have displayed excellent long and mid-term growth.
For examples of well-established successful companies outside of tech, look at Industry sector giants like Boeing (NYSE: BA) and Caterpillar Inc. (NYSE: CAT). There are similar success stories to be found in almost every sector of the market.
5. Don’t Make Rash Portfolio Adjustments
Don’t sell off underperforming stocks at the first sign of trouble. To be a successful investor in the stock market, you will need to have the patience to ride the downward and upward waves of stock prices. Selling off stock at the first sign of decline will leave you with a reactionary portfolio that will be unlikely to make you any money.
The stock market can be hugely rewarding as a platform for investment. The most successful investors are those who take the time to learn the basics of the market while being patient with their portfolios. These simple tips won’t make you an expert investor overnight, however, they’re all critically important and should not be ignored when you are purchasing your first publicly traded shares.
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