The stock market is something we read about daily, the exchanges from New York, London, Paris, Tokyo as well as places like Bombay and Shanghai. For many investing in the stock market is an unfathomable move and it’s unclear how to begin.
Tons and tons have been written on the methods and strategies of investing in the stock market and websites to get you started in the right direction. A good stock broker can advise you on putting together a portfolio reflecting your needs whether for conservative investment or ready for a certain amount of risk.
People like billionaire Warren Buffet cautions against investing in businesses you don’t understand. If you wish to invest in individual stocks, make sure you thoroughly understand each company those stocks represent. Another option is to get into exchange-trade funds or mutual funds, letting the fund management worry about buying into or selling off a portfolio of stocks.
When putting your capital into one or more companies, you need to keep your expectations realistic in regards to the length, time and growth that each stock will encounter. Some investments require time to produce long term gains so a sort of panic buying and selling can be disastrous.
Successfully timing the market is easier said than done and demands a very careful analysis. To establish a personal portfolio, think diversification, allocating to all major sectors.
The axiom that fear and greed rule the market is true so don’t let either overtake you but focus on the big picture. Points to keep in mind:
1. Develop a plan of action. Proactively determine where you are in the investment life cycle, what your goals are and how much you need to invest to get there. If you don’t qualified to do this, seek a reputable financial planner.
Remember why you are investing your money and you will be inspired to save more and you will be inspired to save more and may find it easier to determine the right allocation for your portfolio. Don’t expect your portfolio to make you rich overnight. A consistent long-term investment strategy over time is what will build wealth.
2. Put your plan on automatic, as your income grows you may want to add more. Monitor you investments. At the end of each year review your investments and their performance. Deter whether your equity-to-fixed-income ratio should remain the same or change based on where you are in life.
3. Have some fun money. Set aside some investment fun money. You should limit this amount to no more than 5% of your investment portfolio. Do not use retirement money.
Summing it up, investing mistakes are part of the investing process. Knowing what they are, when you are committing them and how to avoid them will help you succeed as an investor. To avoid committing them, develop a thoughtful systematic plan and stick to it.
If you must do something wild set aside the fun money cited in point 3. Follow the foregoing guidelines and you will be well on the way to building a portfolio that will provide many happy returns over the long term.