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8 basic investment tips for beginners

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investment tips

Warren Buffett proclaims that experience is the most important asset to becoming a successful investor. You can start building the right foundations for your investing future by developing attitudes and healthy habits toward evaluating and making investments. Here are 8 stock market investment tips for beginners:

1. Get ready to play the game

Before even getting started with investing in the stock market, make sure that you actually do have a reasonable amount of available cash to play with. Debts and other similar financial obligations should always take priority over investments.

Don’t worry, the stock market isn’t going anywhere, and many good opportunities will still be waiting for you once you are finally able to set aside an emergency fund and get everything else sorted out.

2. Customize your investment strategy

There are a myriad of ways to go about investing in stocks, and the first problem to tackle is determining what your goals are, how long of a timeframe you’re planning for, what your risk appetite is, how much money you can start off with, etc.

Every investor is different, and the key to building a good investment strategy is knowing why you’re investing and then figuring out the most convenient ways to go about the process.

3. Think for the long term

Growing the size and value of your portfolio takes time, so patience is an important quality to have and develop.

Despite what some headlines may lead you to believe, the truth is that there are almost never overnight successes in the stock market. Investors are generally advised to “buy low, sell high,” but that doesn’t quite cover the complexity of the analysis (and guesswork) that goes into investing. 

Read also: Are you using compound interest to your advantage?

It’s a lot less stressful to take things at your own pace, than to constantly fuss over and tweak your portfolio. You should ideally be able to take a step back and rest easily after buying or selling a stock, if that decision was based on careful judgement and not simply on a whim or when panic strikes. One of the easiest investment tips.

4. Choose businesses that inspire confidence

It’s always important to do your homework to fully understand a business’ strengths and weaknesses before deciding on whether it’s a company that you can trust or put your faith in. It generally isn’t a good idea to invest in a company simply because everyone else is.

Other investors may have come to that decision for vastly different reasons, so it’s always best to come to your own independent conclusions rather than letting yourself get swept up by the wave.

5. Diversify to balance risk

Just as the saying tells you to not put all your eggs in one basket, neither should you go all-in on just one stock.

Diversification doesn’t happen overnight, so go for stability as you first start building your portfolio. Then, once you have a comfortably solid base to jump off from, try to spread out your risk exposure across different industries so that negative shocks affecting one company might be offset by modest gains on your other stocks.

6. Invest as often as you can

One of the most important investment tips to further enhance your returns over time is to invest as often as you can. For example, you can start out by putting in as little as $100 a month, and then slowly building up as you gain confidence and are able to afford to invest more every period.

The key here is consistency as you slowly grow your initial investments by stacking additional contributions on top of them, and then eventually reaping greater rewards down the line.

7. Sell as rarely as possible

While the value of the stocks you hold on to may grow considerably, you won’t actually make a profit (or realize a loss) until you sell your stock.

However, for beginner investors with new portfolios, a key investment tip is to only really consider a sale in these situations:

  • When you need the cash to cover a large or emergency expense on the short term,
  • When you feel the need to rebalance your investment portfolio to minimize risk exposure,
  • When changes within the business or its environment cause you to lose confidence,
  • When the stock achieves your personal targets and want to pursue another opportunity, or
  • When you have come to the conclusion that there is a better place to invest your money than in stock.

There may also be some additional costs attached to selling stock, so sales should ideally be rare and far between. But don’t worry, you will eventually find an itchy trigger finger easier to control as you gain more experience and get used to dealing with emotions like fear or uncertainty (or greed).

8. Learn from your mistakes

You might not win every game when playing the stock market, as it is difficult even for seasoned professionals to accurately foresee how a given stock would perform in the future.

This is why selling at a loss or misjudging an investment or company can always still be taken as a positive learning point, if you are able to piece together and better understand what happened in order to avoid putting yourself in similar situations or committing the same errors in the future.

In closing

Despite being an inherently risky activity, trading in the stock market can be highly-rewarding for people looking to grow their investments over the long term. It takes patience and commitment to succeed in the stock market.

So as you start out in your investing journey, remember these investment tips, keep yourself updated on the news, don’t be too greedy, and of course, feel free to consult Academy once in a while.

Once you build enough confidence and momentum, you could be able to rest a bit easier and perhaps only have to update your portfolio every 3 months or so. The stock market may be an intimidating and easy place to get lost in, but you can eventually gain enough experience to make even Warren Buffett proud.

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