Monday, June 26, 2017

5 Basics Everyone Should About the Stock Market

Investing in the stock market can be an effective way to grow wealth above the rate of inflation. However, it can also be an easy way to lose money if you aren't sure what you are doing.

Let's take a look at a few basic concepts that you need to know and understand to have success investing in the market.

The S$P 500 Has a Historical Return of 11 Percent Annually
Patience is an important trait to have if you are going to invest in stocks or any other type of security. It may be easier to show patience when you know that the
S&P 500 offers historical returns of 11 percent per year.

Roughly 7 percent of those gains are attributable to the increase in a stock's value while the other 4 percent can be attributed to dividends reinvested to buy more shares.

Diversify As Much as Possible 
One of the best ways to maximize overall returns is to have exposure to as many different stocks as possible. This means owning multiple companies within a sector as well as owning companies in multiple sectors.

You should also have money invested in government bonds, commodities such as gold and international markets. The easiest way to diversify your holdings is to buy an index or mutual fund. Doing so allows you to buy multiple companies in multiple sectors with one purchase.

Make Decisions Based on Your Goals and Timeline 
The only person who truly knows if an investment is right for you is you. While there is nothing wrong with speaking to a financial professional for help, that person doesn't always have your best interest in mind. Therefore, it is critical to know before you buy a stock or some other security why you are making the decision to do so.

For instance, if you are buying a dividend stock, it should be because you want to be an income investor during retirement. If you choose to buy the new hot technology stock, it should be because you like its growth potential over the next 10-30 years.

While government bonds may not offer the best returns, it should be where you want to put your money if you want a conservative investment that is unlikely to go down in value.

Keep Emotions to a Minimum 
You never want to buy just because the market is going up. You never want to sell just because the market is going down.

In some cases, buying when the market is going up means that you are buying high and are giving yourself limited room for profit. Selling during a correction means that you could lose out on months or years of potential growth for no good reason.

Depending on your investment goals, it may actually be a good idea to buy when the market is going down as it represents a chance to buy quality stocks at relatively low prices.

By relying on your investment plan, you rely less on your emotions and give yourself a better chance of meeting your financial goals both today and in the long run.

Don't Bother Trying to Time the Market

Just because a stock has gone up significantly in the past month doesn't mean that it can't keep going up for another year or two. Conversely, a stock won't stop falling just because it has decreased in value over the past month. The market is simply a place where buyers and sellers meet to gain consensus on what a given equity is worth.

While there are ways to gauge where the market may go in the next hour, day or week, there is no guarantee that your analysis is correct. This is why you have to rely on your research and your intuition as much as what an analyst may say when it comes to making decisions about your portfolio and
entering to the market.

It is important that you begin to invest your money as soon as it is feasible to do so. While the market will go down at times, it is almost guaranteed that you will make a profit given enough time and proper diversification. To start investing, you can open an account through one of many dozen brokers that operate both online and in the physical world.

Andrew Altman

No comments:

Post a Comment