A lot of individuals think that the stock market is daunting, and if you know absolutely nothing about it it definitely can. However, just because it seems a little scary at first doesn’t mean that you shouldn’t use it to grow your wealth. In fact it may actually be one of the best ways you can get double digit returns on the capital you are investing. So you’re a newbie to the stock market, what should you do, and how should you approach the game that is the stock market? Here’s how stock market investing for beginners works:
Well, for starters, the first thing you are going to have to do is research. If that sounds boring to you, I promise it isn’t. Learning about the stock market is interesting and I would recommend watching it for some time before you jump in. Read up on the companies you are interested in investing in and follow their current events in the news. All of these events may indicate what is going to happen with the stock price in the future.
The second piece of advice for beginners is to buy well known companies, and blue chip stocks in industries where you know what is going on. Yes, you’ve heard of the guy who tripled his portfolio with a uranium stock, but do you really know how that company is making money? It could have just as easily gone the other way and he could have lost all of his money in one shot. Invest in companies you know about. Everyone needs toothpaste, so why not look at Colgate. Proctor and Gamble, General Electric and Johnson and Johnson are all companies that have been around for decades and have shown steady growth over the past few decades. Remember the story of the tortoise and the hare—slow and steady wins the race.
Don’t be afraid to cut your loses. It’s human nature that when a stock goes down in price you think that it will surely go back up. When this happens take a step back and figure out why the stock price is falling. Is there a litigation filed against this company? Was their fraud? Find out why and determine if you are still comfortable holding this stock. Don’t be afraid to sell some of your losers if it seems like they’re going to struggle to recover— in the long run you’ll be better off.
Don’t take hot stock tips from your hairdresser, or whomever you are talking to about stocks. Usually, if something is too good to be true, it is. Just look at Bre-x. Do your research.
Diversify your portfolio. This is also known as not putting all your eggs in one basket. Make sure spread your wealth out. Don’t throw all your money at one stock. Invest in a few in different industries and always make sure you have some money in a well diversified index fund, this will help you weather the risk of market fluctuations as you basically just buying the market.
Check out the accompanying video for “Stock Market Investing for Beginners” below!