Want to start investing in stocks? This can surely be an intimidating process, as they have a different nature than certificates of deposits, savings accounts, or money market funds.
Stocks, as you already know, have a fluctuating nature that requires a certain degree of emotional control and intelligence to predict these changes and use them in your favor. If you feel like you’re up to par with these requirements, you can certainly be a great stock investor with the proper knowledge.
The following 7 steps will help you achieve this.
1.Set up Your Goals
The very first step you ought to consider is knowing your goals. Whether you’re saving for retirement, want the money back in five years, want to purchase a home, or saving for college expenses, your goals should be clear to you from the start. Your decisions will be based on these goals. However, if you want your investment returned in a few years, you might want to consider another type of investment due to stocks’ volatility.
Remember that there are three factors to determine your portfolio growth: the amount of capital you invest, the period of your investment, the annual earnings from your capital.
2.Know Your Risk Tolerance
Risk tolerance is an inherent trait present in all humans. However, it can be affected by a number of factors, like income, education, and age. You can understand how you tolerate risk by how you feel about it and the amount of anxiety you feel because of it. Risk tolerance varies for all people and there’s no right answer to know the best risk tolerance balance.
Knowing your risk tolerance will tell you which investments to go for and which ones to avoid.
When you’re feeling anxious, you’ll probably feel fear, which will instigate emotional responses rather than logical ones that will help you manage your decisions wisely.
3. Read Books about Stock Market Investment
As in all fields of expertise, an expert only attains his knowledge through experience. The experts at Andrew Aziz’s community explain that the best investors collaborate with others in the investment game to share knowledge and tips. Always be ready to listen to advice from successful peers in your online community and remember that they have been there and done it. Becoming a successful stock investor is a life’s journey and you should never stop trying to learn. Read online reviews to find out which communities offer the most to their members and join the community which feels right for you
4.Control Your Emotions
The biggest mistake any stock investor could make is letting his emotions control him. Therefore it is important that you set up a trading plan first that covers all your trading processes. And a list of rules you’ll be following. Next, you need to do your research before the market trading hours in a calm environment. Finally, make sure that you don’t react to social network notifications. Instead, mark them for later on your watchlist, so you can evaluate them later.
5.Diversify Your Investments
Diversification is one of the most popular methods for managing risks. Astute investors are familiar with this strategy and that’s why you should implement it as well. Investors use diversification by owning stocks in different industries, companies, and/or countries.
Depending on your choices, your holdings won’t be affected as drastically as they would have if you owned stocks in that company should an unfortunate event occur. It is always safe to diversify, as companies can liquidate their assets any time due to bankruptcy or a lawsuit.
6.Low-Cost Online Service
It is advisable that you start investing in low-cost services online, like a robo advisor, for example, which uses its algorithm to create the perfect portfolio for you according to your risk tolerance and needs. They will usually invest in Exchange-Traded Funds (ETFs). Note that you won’t pick individuals stocks or bonds, as the robo advisor does this for you.
7.Know the Basics
Before making your purchase, there are a few areas of knowledge you should be aware of. For example, you should be knowledgeable about financial definitions and metrics, like the P/E ratio, Return on Equity (ROE), etc. You should also be knowledgeable on stock market order types like stop market orders, limit orders, and trailing stop-loss orders in order to become ready for making your first purchase.
The stock market can be a lucrative investment for you if you play your cards right. These 7 steps should help you if you’re a beginner. As you garner more knowledge over the years, you’ll be able to follow other strategies to mitigate the risk, increase your profits, and grow your investments. Remember that this experience can only be gained through consistent experimentation and learning.