10 Long-term Stocks Investing Tips for Beginners
Buying stocks is not hard, but managing those is quite challenging, especially for beginners. So, these ten tips about investing in stocks might help you.
It has been proven and explained time and time again that investing in stocks is not that hard. Buying stocks of your preferred companies can be done in very few steps. But why is that many still failed in investing in stocks?
While many succeed in reaching their financial goals through investing in stocks, many also failed. And these failures can sometimes be attributed to lack of discipline, lack of a plan, emotion-based decisions, etc.
Stocks is a high-risk investment that promises high returns in the long-term if you managed it properly, prudently, and smartly. It is full of uncertainty and even speculations, but time-tested principles can help beginning investors like you achieve long-term success. Observing these principles can help you minimize risks, stick with your goal, and become more knowledgeable about stocks.
The ten below tips will guide you and help you start your stock "investing journey." These tips are helpful not only at the beginning but throughout your "investing journey."
- Stock investment is a riskier investment compared to others like bonds, but it can provide more significant long-term gains if appropriately managed.
- The stock market is not always stable; there are good times and bad times, but stay cool.
- Observe time-tested general principles.
- Be disciplined and be responsible for your own decision.
10 Tips for beginners
1. Learn the Basics
Before investing, have the initiative to learn some critical information, vocabulary, etc., about stocks. When you are a first-time tourist, you are looking for those "how-to" and "what to" like, "how to check-in on a hotel," "what to avoid in the beach," "what to bring in the mountain." The same goes with investing in stocks; learn the basics and essentials.
While you can always learn while doing, it is wiser if you at least have a basic knowledge about the thing you are getting yourself into before actually engaging in it. The risk of losing money on stocks if you are a beginner is higher, and it is unsurprising. But the thing is, you are making yourself open to more losses and risks if you do not understand stocks, the stock market, the basic strategies, etc.
2. Know Yourself
If you are going to invest, you must know your goal, risk tolerance, and timeline. These three things will guide you on the companies you are going to invest in, the amount you will put, etc. For example, if you want to gain some profit while preserving the capital, you are pretty conservative, so you might want to invest in less-risky stocks. On the other hand, if you are a young professional who is cool with more risks for more returns to grow your wealth, you are an aggressive investor and might want to consider stocks with higher return potential.
3. Consider the Investment Potential
Why do you invest? You invest because you want to grow your wealth; you want to gain profit. So, naturally, you will be attracted to the stocks of companies that currently have outstanding performance. While buying stocks of companies that are currently performing better than their peers is not a wrong decision, you still need to consider its profitability in the future. Because they could be profitable at present but what about three years or five years from now?
Consider the investment potential of companies you are going to invest in. Look for the company plans, expansion plans, management, revenues streams, competition, net income, etc. Do not base your decision on the previous and current prices. Again, previous performance is not a guarantee of future returns.
4. Understand the Investment
Famous billionaire Warren Buffet once said, "Never invest in a business you cannot understand," and that holds true until now. Just like learning the basics, it is your responsibility to understand your potential investment as an investor.
Some investments may really be profitable, but if you do not know and understand when that will come, the plans to achieve that, their business model, their possible competitive advantage, etc., better pass on that investment. Maybe it is not suitable for you. Invest in something you understand, do not be hooked by the trends.
5. Your Portfolio Make-up
Consider your portfolio make-up as well. When you are investing, you need to understand that investing in individuals' companies has more risks. And there are still many risks even if you invest in different companies, especially if they are in the same sector. If you are really fond of investing in individual companies, you should try investing in companies from different sectors. Each sector behaves differently from the other because the things that affect each of them are different.
If you have investments in technology companies, why not try to invest as well in consumer staple stocks, utilities, or energy? By doing so, you are avoiding sector-specific risks. As much as possible, try to achieve a diversified portfolio. If you do not want to invest in other securities, invest in different companies from different sectors.
6. Your Fund.
Before investing, you should also consider your fund or financial situation. The price of stocks is different, so you should think of what and how much you can afford. This does not necessarily refer to the cash available to you right now.
Investing in stocks can provide higher returns in the long-term, so you will need to invest regularly to fully benefit from the potential long-term high returns. Do not invest money you are going to need immediately or within five years.
7. Avoid Penny Stocks
If you do not have ample funds and still decided to invest, then you better make the most out of it. Making the most out of it means investing in penny stocks. You might be thinking that there is less to lose in these stocks, but you are not entirely correct about it. Penny stocks, though affordable, are riskier than high-priced stocks since they are more volatile and less regulated.
If you really want to invest in stocks and have some amount that you will not need immediately, there are still ways to invest in less-risky and high-priced stocks. You can invest in these less risky companies through fractional shares. These fractional shares allow investors to own a fraction of a share. For example, if the stock price is $250, you can buy a fraction of it for $50, and the other investors like you will buy the rest.
8. Keep your emotions at bay.
Though it provides potential high returns, the stock market is still an uncertain field. It is not always stable, and it is riskier than the others. You can either gain or lose. But always have a level-headed mind. As an investor, you should always control your temperament to have more rational and logical decisions.
There will be instances when the market will experience a slump but do not be too afraid. If you invested in a company with a solid foundation, the price might experience a rebound. But if the slump continues, think about whether you will sell to avoid further loss or not in the hope of a rebound. Do not pull your money out of the market immediately; always assess the situation, the possible causes, etc.
Investment decisions based on emotions hurt you and your portfolio. It would be best if you kept fear, hope, and greed at bay. If you want to experience long-term success in stocks, then do not base your investment decisions on emotions; instead, depend on logic, data, and news.
9. Stick with the strategy
There are many strategies that beginners like you can use. You can even use them even if you are already familiar with how everything goes. Look and research for strategy and picked the one you think is best for you. All strategies have merits and demerits, so there will be times when they will not work that great, but for most, these philosophies help investors avoid major losses.
10. Be aware of your taxes but don't worry
When you are an investor, you will naturally think of tax, which is not bad. But you should not put tax above everything else because you are prone to making misguided decisions if you do. While you try to think of tax-saving investments or strategies to minimize your tax liability, remember that your main goal is to grow your wealth securely.
Do not invest all of your money in individual stocks. Diversifying your portfolio is an excellent move to avoid too many risks. Many investors, while keeping investments on stocks, are also holding some other form of securities. You can have a mix of bonds and stocks on your portfolio or have mutual funds. One fast way to achieve a diversified portfolio is through investing in low-cost funds like index funds. Index funds are a less risky form of investment since it tracks an index like S&P 500, providing a broader market exposure. Therefore, the performance is not only reflective of one company but a group of companies. And though index funds have limited gain in the short-term, investors can gain substantial profit from them in the long run.