Anybody can invest in the stock market and learn the tricks of the trade from a young age. Millions of Americans trade in corporate securities and it can be quite a profitable venture for them. There is no luck involved, as, in order to succeed, it takes dedication and learning from the experiences of these experts.
While intelligence is an asset in any endeavour, when it comes to investing in stocks superior IQ doesn’t guarantee getting ahead. Anybody with basic fifth grade math skills can follow the stock market. Here are five tips and tricks to help you succeed in the stock market:
1. Long-term goals
The stock market game is about the magic of compound interest and letting your money work for you. Ask yourself what you need the money for. Is it for retirement? Is it for you children’s college tuition? Is it for a future wedding fund? Depending on the answer, you will have to determine if you want to stay invested for 5, 10, 15 or 20 years and what amount of return on interest you would like. If you want a quick pay out, the stock market is not for you. The stock market is too volatile to give you capital over a short timeframe. You will have to invest regularly, avoid unnecessary risk, and reap the rewards over a longer period of time. You can use an online calculator to determine how long you should be invested for. Kiplinger, Bankrate, and MSN Money offer some great calculators.
2. Risk appetite
Consider your tolerance for risk and be prudent. Where some individuals can stay invested for a long time, others may panic and pull out early. The important thing is to be level-headed. As you begin to invest more and more, your anxiety with each investment reduces, and what seemed risky at first will become more palatable as you stay in the game. This does not mean your risk tolerance has increased, but simply that your perception of the risk has changed. As you gain more knowledge, insight and analysis, you will begin to feel right at home.
3. Emotional intelligence
The price of stocks is constantly fluctuating. A person who feels cynical about the markets chances is called a bear and a person who remains optimistic is called a bull. The price fluctuates as the bears and bulls fight it out. Other questions may also arise, like should you pull out now? When the share price increases, should you stay invested or sell? You need to have an exit strategy before you buy stock and pull out when expectations have not been met without bringing emotion into it. Emotions can be fatal to any investment decision.
4. Learn the basics
Learn the fundamentals about the market. Unless you want ETFs (Exchange Traded Funds) you may want to invest in individual securities. Some securities keep rising even when the market average falls. Learn about the metrics like P/E ratio and earnings per share as well as return on equity (ROE) and stock charts. Learn about stock selection, order types, and investment accounts to start off. Do not try to commit fraud, otherwise the SEC (Securities and Exchange Commission) may bring lawful suit against you.
5. Diversify your portfolio
It is important to diversify your stock portfolio, especially in your first years of investing. Invest in stock of different companies so that you can cover your losses on one stock with the gains made on the others. If you invest in five stocks of different companies and four do well while the fifth goes bankrupt, you will still have made a net gain at the end of the day.
