Four Rules of the Stock Market for New Investor

November 15, 2018
718 Views

If you are considering becoming an new investor in the stock market, then you’ll find it’s easier than ever before. Exchange traded funds, online brokerages, and even smaller traditional brokerages can all offer easy access to the most popular stocks of the day.

52% of Americans have money invested in the stock market. Even as older investors cut risk and move to retirement with other funds, there is always a steady stream of people looking to profit from what has traditionally been a very lucrative opportunity.

The biggest hurdle for a new investor is not deciding to join the market; it’s knowing the basic wisdom that all first-timers should follow. Knowing the key ‘rules’ can make your journey smoother and could help you to avoid common mistakes.

  1. Focus on the Long-Term

While it’s technically possible, chances are that the stock market won’t give you returns overnight. Don’t start investing with the idea that you’re quickly going to turn your money into millions. For most people, long term investing for dividends is the best option. Stock investments can supplement retirement savings or help you to achieve your mid-term financial goals.

  1. Diversify Your Interests

Some people enter the market and put all their money into a single stock or sector. This is a mistake. Spread your investments across multiple stocks and sectors to protect your portfolio. You can do this manually by selecting different stocks, or, you could consider a managed investment fund or an exchange traded fund.

  1. Consider a Fund if You Don’t Want to Micromanage Your Investments

Trading individual stocks is a great way to have control over your investments, but you might not be comfortable selecting stocks early in your career. One way to both diversify and build your portfolio is through an Exchange Traded Fund (ETF). This gives you a diversified portfolio that is professionally managed with a simple structure.

  1. Avoid Being Reactive When You’re a New Investor

The stock market goes through peaks and troughs, and even periods of high volatility where there is no clear pattern from day to day or week to week. Until you are comfortable with reading the market, avoid being reactive to unexplained changes in stock value. A single day slide could be quickly recovered, and sudden price increases aren’t always indicators of stable growth.

There are no shortcuts to success on the market. Research and due diligence, choosing the right stocks, and a certain element of timing and luck can all contribute to success. Understanding the golden rules of the stock market will keep you mindful of your investment patterns while keeping everything in perspective throughout your journey.

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