Investing is what makes money grow. One can invest in so many things like real estate, Gold, Bitcoins or Litecoins, Fixed Deposits, Mutual Funds and Stocks. When it comes to stocks it is seen that stocks have offered the most growth potential compared to bonds and short-term investments. If you are saving for something years away, you can probably ride out stock market downturns. Also you needn’t invest all of your money in stocks and you can adjust the amount of stocks to reflect your time frame for investing, risk, tolerance, and financial situation.
But before any one wants to invest in stocks one should take care of certain things. Here are those 15 things that you should remember when investing in stocks as recommended by Brian Saranovitz.
1. You should know the lingo terms associated with Stocks
As a newbie when you hear certain terms like EPS- earnings per share or ETF- exchange-traded fund you wonder what the hell it is. This is because you don’t know the lingo terms associated with stock investment. Therefore before you enter the stock market know the vocabulary associated with it. Best way is to visit here and learn the lingo terms online which will make you understand some of the high return or low return stocks terms to make proper investment.
2. You should know the risk associated with stocks
Investment of any kind has its own risks especially in the short term investment. As stocks market may fluctuate and would not be the same each day you need to recognize your own risk tolerance. If you started investing near the retirement age then you are in the high risk bracket. The closer you are to retirement, the less time you’ll have to make up for a large loss as such people want to keep high stock exposure in their portfolios. Therefore consider age-appropriate portfolio allocations to assure one is properly invested in the event of a major stock market correction or potential bear market, when investing in stocks.
3. Know about the exchange traded funds, index funds, and mutual funds
Before you start investing know what all options Stocks have for you in terms on investment. You can go for exchange-traded funds (ETFs), index funds, and mutual funds without having to lean on individual stocks. Many of these stocks are automatically diversified and won’t ruin all your investments. Also they have low fees, and are rated for risk tolerance. The target-date funds, which assume investors will retire in a certain year, adjust your asset allocation to get more risk-averse as one approaches retirement age.
4. Remember it is not all “buy low, sell high”
Stock ownership provides multiple ways to profit—not only price appreciation, but also dividends,” With a dividend, you get paid simply for owning a stock. A recent Hartford Funds study showed that dividend-paying stocks tend to beat the market over the long term and yield far better returns for investors than stocks that don’t pay dividends.
5. Consider the long-term when going for Stock investment
When you think of investing in stocks always commit to being a long-term trader, and the odds of coming out ahead turn in your favour . Some times your stocks might dip for a little while, but with the patience to ride it out, you’ll earn in the long run.
6. Know dollar-cost averaging
According to stock market experts many people are introduced to stocks through an employer-based retirement program such as a 401(k) plan, where you get to choose your preferred investments from several options. So you should take full advantage of these programs, since many are tax-deferred and have matching components. They also make it easy to use dollar-cost averaging.” In this investment technique, you buy a fixed dollar amount of stocks regularly, such as every pay period. That means you’re buying more shares when the price is lower and fewer when the price is higher, removing the worry about when to buy.
7. Diversify your investment in every way
Never invest all your money in one stock. You can purchase 20 to 30 stocks to diversify your portfolio Not only should you pick different industries, such as consumer staples and technology stocks, but you should aim to have different countries, and both mega-corporations and small companies. In mastering how to invest money, your overall investments should be diversified, too. Stocks should make up a part of your portfolio, but not all of it and you can also have bonds and fixed-indexed annuities as well.
8. Get used to buy and hold strategy
According to Nobel Prize-winning economist Paul Samuelson, “Scores of documented statistical studies attest that not one in ten ‘timers’ ends up getting back into the market at bargain prices lower than what they sold at earlier.” In fact, you might end up doing worse damage, says Saranovitz. “Many traders panic and sell stocks too late, after a large drop,” he says. “That could be the worst time to sell.” It’s hard to calculate exactly when to sell a particular holding, but signs include a high price-to-earnings ratio, stagnating or dropping sales, and decreasing profit.
9. You can expect realistic returns
According to Saranovitz with cryptocurrencies like Bitcoin increasing by 1,000 percent or more in a year, investors might have unrealistic ideas about what to expect from stocks. In a 2016 study, investors expected an 8.5 percent return over inflation, but financial advisers said less than 6 percent was more realistic. While 2017 was a great year for stocks, the market could go down in any given year. Thus know that the past performance is no indication of future results.
10. Know the capital gains tax associated with stock investment
When you do sell a stock for a profit, you have to pay tax in the form of a capital gains tax. If you are on a long term investment plan then you can have your investment grow in a tax-free environment. But if you sell a stock for less than you paid for it, the resulting capital loss could lower the tax you’ll pay on your gains. Therefore take advice from a tax professional and know how to keep more of your stock market gains.
11. Consider fees if you go through investing from an advisor
You can minimize your fees when investing in stocks. You can do yourself online research or compare prices of online brokers if you want one. Many advisors offer bonus offer to new investors. If you’re using an adviser, make sure you understand the fee structure that can include custodial fees, trading costs investment management fees, adviser fees, as well as other expenses.
12. Experiment with company shares
Owning individual company shares is higher risk than investing in funds; be prepared to lose 100 percent of your investment. Still, if you have insight and knowledge of a particular industry or use products of a company you admire, feel free to buy some company shares. You need to be but careful such as companies that recently cut dividends or have never earned a profit.
13. Opt out penny stocks and options
If you are new investor then avoid penny stocks, which are sort of game of chance. Also investing in options—the right to buy or sell a stock for a certain price within a certain time can be inexpensive, and it’s also easier to lose all your investment when options expire. According to Saranovit you have to keep a cool head when times get tough. Since 1950, the Standard & Poor’s 500 stock index fell by 3 percent or more on 100 days. In the ensuing year following those drops, the S&P 500 generated a 16.8 percent investment return average. Too many people sell after drops because they fear losing even more.” As noted investor Warren Buffett puts it: “Be fearful when others are greedy and greedy when others are fearful.”
14. Don’t rejoice on unrealized profits
When you learn how to invest in stocks, you could become a paper millionaire—but until you sell your holdings, the profits aren’t yours. On the other hand, don’t cry on unrealized losses, either. You can’t count your profits or losses until you sell.
15. Stocks is not always the right choice
Finally remember that stocks is not always the right choice for investment for every one. With online boom you can search many other investment options rather than stocks. There are various investment choices to make. As a new player never jump on stocks investment without the know how or understanding of how stock works. According to Lynn Toomey, co-founder of Your Retirement Advisor, Life is 20 percent what happens to you and 80 percent how you react to it.’ With your financial life, you might not always have the right know-how or frame of mind if the going gets tough. So you can think of other investment opportunities that are safe and secure for you.