What do you need to know before you start investing?
Many people don’t invest in the market due to their lack of knowledge, as per market watch, “…One in five Americans plead ignorance — “They don’t know enough” about markets.”
If you are the one in the five Americans who don’t invest because you don’t know enough about the market, let me assure you that you don’t need to know everything about the market in order to invest. Heck you don’t need to know zip, zero, zilch, nada, nothing about the stock market to invest.
Okay maybe knowing how and where to purchase a stock can be helpful and will be talked about later on in this blog.
Any who, the best way to learn is by doing, so before you go and close this blog to open your investment account here are some takeaways you should be aware of before investing.
Revise Your Financial Situation
You should absolutely know where you are financially. If you are in debt and paying high interest, paying off your debt is the first things you should do before investing, or at least have it under control. Debt increases faster than any investment in the stock market. As your debt only compounds more interest, your investment(s) can either increase, decrease or stay stagnate.
Though it can increase the average of the S&P500 index returns average 10%annually while the average credit card interest is 14.14% . With that being said, investing to pay off your debt is not the safest bet since the chances of you losing your money in the market is also possible.
So take care of that credit card balance will ya?
Before you start investing you want to make sure that you’ll have an emergency fund to support your living cost in the case where the market crashes or you lose your job.
Saving for an emergency fund might take a while for some, especially if you haven’t even started and or if money is tight, but you don’t necessarily need to have it in order to invest. Having an emergency fund just secures you finically and can keeps you in the market longer. Not having one would mean that you would probably have to sell some if not all of your investments to keep up with your living expenses.
Track your expenses and make sure you know where your cash is going. learn how to budget and learn how to be in control of your money.
The best time to invest is now…well after you finish reading.
Emotions. Rumors. Hype.
“The most important quality for an investor is temperament, not intellect.” — Warren Buffett
One of the major reasons why the price of the stocks either strikes up or down is due to investors trading off emotions. An investors might of heard something from somebody that triggered them to sell or buy. The media and politics can also influence an investor to make poor choices if they aren’t careful.
Investors are emotional athletes, the more they participate in the sport, the stronger and more prepared they are.
Having a well-controlled temperament when investing is very important, according to Warren Buffet its even more important than having intellect. An investor needs to be emotionally stable and not let their emotions cloud their judgment as they ride the market waves up and down.
Don’t trade off impulsive decisions!
You only lose money when you sell a stock under the brought price . Its okay you lose, you will lose eventually, it’s inevitable. It’s just part of the game, you’ll win some and you’ll lose some, you can’t win them all. But if you manage your risk right you can win more than you lose and leave with profits.
Even the greatest investors lose millions of dollars in the market, its okay. Don’t get deterred because an investment didn’t go as plan, learn from your mistake and march forward.
A loss can also be a gain, its all about perspective.
Rumors about a stock can lead many investors to either sell or buy a certain stock. When Elon Musk announced that Tesla was going private if stock prices rise and their stock price rose 11 percent closing at $379.57 that day.
The purpose of this was to secure funding and not have the prices of the stock distracting or scaring his share-holders and workers.
The announcement was ruled misleading by federal judge for violating securities laws when he twitted about “securing funds”. This lead Tesla losing about 18% in stock price in the last few months.
Or when marijuana was on it’s way to become legal for recreational use in Canada and rumors spread that the cannabis sector was going to be the new bitcoin. While some pot stocks did good, the rest did not do as good as expected due to it being overhyped.
New investors jumped on it hoping to make a quick buck or hopefully become rich. These investors most likely didn’t do enough research or any at all to see how these cannabis companies where going to execute, in regards to how much can they produce (supply) and how much can they sell (demand).
Don’t follow the hype, lesson learned. Which leads me to my next tip.
Do Your Own Research!
Once you have your money straight, and evaluated your risks , it’s time to do your research.
“ Buy into a company because you want to own it not because you want the stock to go up.” — Warren Buffet
When you buy shares of a stock you become partial owner of that company, so buy a company’s stock as if you want to own it all someday. This gives you more of an incentive to continue investing in the company regularly and checking up on the company. Knowing about the company as a company owner gives you a good idea on how the company is performing and how it will perform in the future.
There are two types of investors in this world. You are either a Technical investor or a fundamental investor. Fundamental investors research about the industry and the company as a whole, down to the balance sheets and decides whether or not the company is a good investment. Technical investors use stocks charts to look for patterns to know when would be a good time to buy or sell. Try out both and see which one fits you best.
Understand Risk Management, What Can You Risk?
Once you have your money straight, and have chosen what kind of investor you want to be, it’s time to put some money in the market. The money that you put into the market should be money that you don’t need or don’t mind losing. Think of it as money already lost, expect nothing from it. It also doesn’t take much money to invest either, the minimum amount to invest in certain Charles Schwab mutual funds is a dollar, yes a dollar!
So the excuse for not having enough money to invest is out the window.
What’s your excuse now?
If you don’t plan out your trades, you plan to fail. Don’t invest in till you have formed a solid plan. A plan which consist of the price you plan on buying the stock, the price you plan on selling the stock to secure profits and how much money are you willing to lose on the stock in case things don’t go as planned.
Plan. Plan. Plan.
Please don’t invest all of your money in one stock, the more diverse you are the less risk you are expose to when it comes to losing money. Research and invest in different sectors or trade index funds to diversify your portfolio. When a certain company doesn’t do so good, you can have other companies pick up those losses. Its better and smarter than having all your eggs in one basket and losing everything in one swoop.
In this day in age it’s even easier to invest, so why not take advantage of it. Back in the day you would of have to go to wall street or where ever there was a stock broker and pay the broker to make trades for you.
“…you don’t to know zip, zero, zilch, nada, nothing about the stock market to invest.”
And now you have some knowledge on the market and have some apps where you can start trading today.
“The best way to learn is by doing”
So just open that account and start trading, life shouldn’t be lived with regrets. Go make some mistakes, mistakes only make you that much more better as a trader. Now do your due diligence and research some companies to invest in.
“The best time to invest is now”
- Revise and track your finances
- Don’t follow the hype
- Do your own research
- PLEASE ! Plan. Plan. Plan your trades.
- Keep your emotions in check
- Learn by actually doing it.