5 Golden Rules For Investing In the Stock Market
Investing & making a decent amount of money on the stock exchange is not just for the wealthy & privileged, but just about anyone can devote some time & a little money to investing wisely for a decent return.
It is always worthwhile advocate some good advice to new investors & that is to only risk money that you do not depend on.
If you have high interest debt, such as a high outstanding credit card balance, you are advised to pay this off first especially seeing as that the interest you are saving by paying off your credit card is way higher than you will earn with a medium risk investment.
This is crucial advice, as for the new investor there is every chance that you may not make a quick return, or worse still, you may lose all of it so it is clear that you cannot risk your own personal funds that you need to live on.
With that out of the way, the stock market affords us the opportunity of making decent returns on our money with a certain amount of risk.
Generally the amount of risk is directly proportional to the potential growth, ie you stand to make more if you are willing to risk more.
1. Before You Invest Educate Yourself
It would be more than useful for you to be well informed as to what investment options you have & what returns they can offer & at what risk
You should also know how to analyze stocks, read financial statements and what to look out for in the various investment scams that you might be exposed to.
Good advice would be to stick to industries you are familiar with & companies that you have all the applicable information on.
2. Ensure That the Cost Of Investing Is Less Than 2% Of the Actual Investment
You need to make sure that all of the fees & commissions associated with the investment is less than 2% otherwise you would be better off leaving your money in an interest bearing account in the bank.
3. If You Have Less Than $100 to Invest…
Even if you only have $50 a month to invest there are dividend re-investment plans that you can invest in with no fees.
Companies that you can invest in directly avoid you having to pay stock broker fees or commissions as you are buying the stock directly from the company itself.
You will have to research the company in question to ascertain whether it will offer you the returns you expect.
4. If You Have $500 a Month To Invest…
With this amount you can invest in a Index Fund which covers a broader segment of the market.
A good return on your investment over the years would be around 10%, which is what mutual index funds have returned through recessions, dips & good times.
Furthermore these type of funds track the S&P 500 index.
It’s also interesting to note that Warren Buffett says that investors would be better off putting their money into index funds and that “A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money,”
He also advises investors against running to invest in the increasingly popular hedge funds, where these fund managers get a fixed fee as well as a cut of the profits which will all be paid for by you therefore reducing your return whether they are performing well or not.
According to Warren Buffett “The stock market is designed to transfer money from the active to the patient” which means that if you are patient, and you have bought stock in solid companies, the money will come.
People trading on the stock market feel compelled to constantly buy & sell stocks, often with an overall net loss – so do not fall into this trap as patience will provide you with good returns.
Also remember to be disciplined, patient & identify good stocks & companies that are undervalued in order to build a small investment portfolio that can achieve good growth & provide you with excellent returns.
Finally, anyone wanting to make better than average returns on the stock market would be well advised to read The Snowball which is the biography on the life of Warren Buffett who is arguably the world’s most successful (and wealthiest) investor.
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