Succeeding in the Stock Market: If you’re looking to make the most of your money in the stock market, you’ll need to avoid making these five mistakes
1) Pick a strategy you understand
The stock market can be scary and confusing—it’s all numbers, acronyms, and crazy amounts of data. But at its core, it’s still just a place where companies trade shares with investors. If you’re nervous about investing or don’t really understand how it works, pick an investment strategy that makes sense to you (small-cap stocks? or low-risk bonds?).
Sticking to a strategy that you understand is key to your success—and if you aren’t sure what’s best for your portfolio, ask a financial adviser.
2) Start with index funds
Index funds, a type of mutual fund that invests in a set group of securities and usually tracks a major market index, are one of your best bets if you’re looking to get into investing. Index funds can be bought and sold just like individual stocks, but because they’re mutual funds, they offer some major advantages over buying shares from one company.
Namely: You don’t have to pay any transaction fees or commissions when you buy and sell an index fund, so you don’t have to fork over your own money to make stock trades. There are also no minimum investment requirements with index funds, which means small investors can use them just as effectively as large ones.
3) Diversify your investments
The more money you put into different investments, such as stocks and bonds, or even a few different types of each, the less risk you’ll have. This is because if one investment begins to fail—say your tech stock tanks—the losses will be minimized by your other holdings.
However, by diversifying too much, you may end up with so many small holdings that it’s difficult to monitor them all effectively. The key is to strike a balance between spreading out your money and monitoring it effectively.
4) Invest regularly
No one can claim to be an overnight success, and that applies as much to investing as it does in any other area of life. One common mistake many new investors make is buying shares of a stock they’re interested in and then letting them sit around doing nothing.
The best time to buy stocks is when you have money to invest, but you should invest regularly even if you don’t have much money saved up yet. Investing regularly helps you get into a habit of paying attention and learning more about what’s going on with your investments.
It also gives you access to practice making trades, which will help improve your timing and confidence with every trade. In short, even a small amount of regular investing will go a long way toward helping you develop skills that’ll serve you well over time.
5) Keep at it!
As a new investor, you may encounter some bumps along your path. Markets can fluctuate and your decisions might not always be correct, but if you stick with them, chances are good that your portfolio will grow. And if you’re going to be investing for decades, compounding growth becomes very powerful. The bottom line: Don’t panic when things don’t go as planned; just adjust and move on!