Personal financial investment can be a very difficult endeavor that requires a lot of time and education. While there are numerous ways for beginning investors and day traders to dabble in the stock market and learn on the fly, developing sound, profitable strategies can take years.
Having a strong foundation of understanding regarding basic market strategies, however, can be an enormous help early in your career as an investor. Bearing that in mind, I’ve compiled a list of 10 vital tips and strategies from investing experts and financial sources.
Keep It Simple
The importance of keeping it simple in investing is impossible to overstate. Particularly for beginners, the temptation is to swing for the fences, so to speak, and try to land a brilliant bit of stock that will make you rich overnight.
This just isn’t how it works most of the time. A patient, simplified approach focused on sound reasoning is always the likelier to lead to success.
Remember That Investment Is Long-Term
There’s a difference between day trading and investing. While day trading may seem like the more exciting and appealing of the two options, it’s really reserved for people who want to make careers in the stock market. Investing is more of a financial strategy than a day-to-day activity, and while you should monitor things closely, you should also accept that it’s a long-term practice; small gains and losses shouldn’t necessarily affect your actions so much as distant outlook.
Set Your Lower Limits
While it’s important not to overreact to short-term losses, you should also have a lower limit you’re not willing to dip past. If you can predetermine the amount you want to risk and stick to that amount, you can ensure that you won’t grow stubborn with an investment, keeping with it after it becomes financially problematic in the hopes of a turnaround.
Don’t Get Greedy
Just as you should always set lower limits, you should also cap off how much you’re hoping to profit on a given investment. At some point, after all, the point is to cash out and profit. Every investment is different, but a nice general guideline is: don’t get greedy and hold onto an investment too long just because it’s not losing you money.
Play The Business, Not The Stock
If Warren Buffett said it, it must be good advice! “Games are won by players who focus on the playing field – not those whose eyes are glued to the scoreboard.” Basically, this means make your decisions based on the performance and quality of companies and industries you invest in, as opposed to the day-to-day shifts in their stock valuations.
Diversify When Possible
This is one of the most popular tips not just for beginners but for investors in general: diversify your portfolio. Investing in too many stocks in the same industry, or dependent on the same factors for success, leaves you vulnerable. By establishing various branches of your portfolio in different industries, you decrease the likelihood of a net loss.
Invest In Bad Situations
That sounds counter-intuitive, but consider the advice as it was stated by George Soros: “The worse a situation becomes, the less it takes to turn it around, and the bigger the upside.” This doesn’t mean you should simply gamble on poorly performing stocks, but it’s a handy tip to keep in mind. Most drop-offs bottom out at some point, and at that point there’s nowhere to go but up.
Don’t Get Emotional
This is another tip that doesn’t come from a particular expert or source, but rather is almost always listed as advice for beginner investors: emotion can cripple your portfolio. Whether it means you’re being stubborn about losses, latching onto a stock because of your personal interest in the company, etc., emotion can block you from making reasoned, strategic decisions.
Consider A Mutual Fund
If you’re truly uncertain about your own investing acumen, but you want to take advantage of the markets and learn the process, a fund might be the perfect solution. Basically, a mutual fund allows you to benefit from various assets without the responsibility of making your own investment decisions. You simply choose a fund, buy into it alongside other investors, and allow an expert to allocate your collective finances in a portfolio, for a fee. It’s a great way to put your money to work and observe market impact without making decisions on your own just yet.
Never Stop Learning
That may sound like a cliché, but it’s also vitally important. Because the stock market is always growing and changing, and no pattern is guaranteed to repeat, it’s important to analyze each new decision with a fresh perspective; and that means staying educated on the latest strategies and advice.
Several famously successful investors have made the point over the year that the mind is ultimately the most important investment, and this is something we should all remember when making financial decisions.