Important Tips For First-Time Stock Market Investors
The stock market continues to boom and is a place where many Americans have chosen to grow their retirement and investment accounts. If you have decided to take advantage of the market's record highs and do some investing of your own, then it's important you educate yourself about the process. While many stocks have the potential to earn you great returns, if you jump in with your wallet before your brain, then you could wind up quickly losing a lot of your hard-earned money.
Before you start buying stocks, consider each of these important tips:
Tip: Buy a Simple-to-Understand Stock Investing Basics Book
As a beginning investor, you need to learn all of the investing lingo and other basics of the process. Rather than reading a bunch of articles online that may or may not contain factual information, instead, purchase a simple-to-understand stock market investing book and start your education.
Tip: Strongly Consider Diversifying Your Investments
While you can purchase stocks for individual companies, this is a risky way to make money in the market. A single problem with that company could result in its stock value tanking and taking your investment with it.
For example, suppose you invest in an oil and gas company that just discovered a new shale deposit and is expected to make billions of dollars over the next decade. You log on to your brokerage house and buy a bunch of stock. The next day, one of their ocean tankers runs aground in Alaska, and the company sustains huge losses and ends up owing millions of dollars in governmental fines.
Instead of taking on this type of risk, it's always a better idea to purchase money market or other funds designed to spread out your risk over many different companies. This way, if one company has a serious issue, you won't lose all of your investment.
Tip: Start Small and Stay Within Your Investing Budget
Finally, it's important to note that investing in the stock market always comes with risk. When you make a good investment and "win" then it's easy for the gambling part of your brain to kick in and encourage you to invest more so you can "win" more. This is one of the ways first-time investors get into trouble. They get excited and then start buying more stocks on emotion rather than pre-planning.
To keep yourself from investing on emotion, start slowly with a small budget and make a plan for moving forward. Stick to the plan and maintain the course over the long-haul instead of investing based on emotion or the daily fluctuations of the market. Check out sources like a simple stock investing book to learn more
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