We all hear about those individuals who can make huge amounts of money simply by trading stocks. While this may be enticing, it is definitely not easy. If you want to dabble in stocks, you must do so with the knowledge you might lose everything, no matter what. If you still want to make the jump into the stock market, follow these 5 tips to help you get started and hopefully pushed in the right direction.
1. Know and Understand Your Risk Tolerance
Before ever putting any money into the stock market or investments, you need to figure out and know how risk averse you are. Whether you love taking risks and have no problem with the potential of losing it all or are more reserved and don’t want to see any big loss, there are options for you to invest. If you have a high risk tolerance, individual stocks are a good idea for you, and if you have low risk tolerance, it’s best to stick with something like index funds.
2. Diversify Your Portfolio
In a similar vein as the last section, you need to make sure the stocks, funds and options that you hold come from a variety of different sectors and types. This is because if you “have all your eggs in one basket” and that basket breaks, you are left with nothing. If you diversify your assets, you have a much better chance of surviving a downturn in a sector that you support.
3. Set Goals
Another huge and important tip that you should consider before jumping into the stock market with both feet in is to set goals. What is your aim out of the stock market? Do you want to build huge money quickly, with the risk of losing it or do you want a nice, slow but sure build over time? Your goals with the stock market will not only dictate which stocks you look at and choose, but also how often and how diligently you are checking the stocks.
4. Don’t Let Your Emotions Get the Best of You
The rise and fall of your stocks and portfolio can often be a very emotional time and can lead you to question every single decision you made in the stock market. The stocks can make you happy, sad, angry, hopeful, defeated and many more emotions sometimes all within the same day. However, it is important that you don’t let these decisions lead or dictate what choices you make in the market as emotions can make a person do something they never would have considered otherwise.
5. Don’t Be a Follower
This is a tough one, but one that will be worth your while if you can do it. Everyone’s instinct (in both the stock market and often in life) is to be a follower. However, in the stock market, it is normally better to do what other people aren’t and set your own pathway to success. An example is that when a stock is down, most people sell and when a stock is doing well, most buy. In reality, you should be buying when it was down so you get it for cheaper and selling when its high, so you can get the most money for it.