Investing in the stock market is a great practice for growing your wealth and setting aside money for the future.
The problem, though, is that only 37 percent of young adults (aged 18-34) actually invest in the stock market.
There are lots of reasons why young adults don’t invest in the stock market. One of the most common, though, is that they aren’t sure how.
If you’re part of this group but would like to learn how to invest in stocks the right way, keep reading.
Listed below are 10 important stock investment tips that everyone needs to know.
1. Set Clear, Long-Term Goals
Before you start investing in the stock market, you first need to think about why you want to invest.
What are your long-term goals? Do you want to save money for your kids’ college tuition? Do you want to set up a good retirement fund for yourself?
There are lots of different reasons why someone might invest in the stock market, and one reason isn’t better than another.
The key is to know why you, specifically, are investing and what you want to get out of the process. This will help you avoid making decisions that aren’t in your best interests.
2. Know Your Risk Tolerance
It’s important to think about your risk tolerance, too.
As the name suggests, risk tolerance is a psychological trait that refers to the way you feel about taking risks.
Investing in the stock market is risky, but some investments are riskier than others.
Know what you’re willing to risk and what you’re willing to lose before you start investing.
That way, you’ll have an easier time budgeting money and figuring out how much you want to invest in the stock market.
3. Don’t Let Your Emotions Get the Better of You
It’s easy to let your emotions get the better of you when you’re investing in the stock market.
When you see the price of stocks rising and falling in ways that go against your expectations, you might feel anxious or consider trying to sell everything.
In most cases, though, when you act on emotion instead of letting the market run its course, you’ll end up losing more money than you would if you had just left your investments alone.
4. Learn the Basics
Spend some time researching the basics of the stock market before you jump in and start investing.
Learning about things like different types of investment accounts and different trading techniques can help you feel more confident about your investments.
Don’t be afraid to reach out to a professional and ask for their advice or assistance in choosing stocks, either.
5. Diversify
Generally speaking, it’s a good idea to diversify your investment portfolio. Don’t put all your eggs in one basket.
Good investors usually own stock in several different companies in several different industries. Many even own stock in companies in different countries.
By diversifying your investment portfolio, you can rest easy knowing that one bad event will not have a significant effect on all of your holdings.
Even if the price of one stock plummets, you won’t be out a ton of money because your other stocks will likely be able to help make up the difference.
6. Take Advantage of Tax-Deferred Accounts
If you’re brand new to investing, a great starting point is with a tax-deferred account like a 401(k) or an IRA.
These are retirement accounts that help to lower your annual tax bill while also helping you set up a nest egg for the future.
If your employer offers to match your 401(k) contributions, you should also be sure to max out the percentage deposited into that account each month to take full advantage of their matching program.
7. Plan Ahead
When you first start investing in the stock market, it’s a good idea to have a plan in place.
Before you start to see the price of stocks rise and fall, think about how you’re going to handle the inevitable ebbs and flows of the market.
Is there a certain point when you will sell your stocks? What kind of criteria are you going to have in place to make sure you’re buying the right stocks?
If you have a plan in place right from the start, you’ll have an easier time making responsible decisions for yourself and your money.
8. Do Your Research Before You Invest
If you’re thinking about investing in a particular company, it’s important to do your research beforehand.
When you purchase stock in a company, you become a partial owner. Look for companies to invest in that match up with your values and have good long-term prospects.
It might be tempting to invest in whatever companies are hot at the moment. Remember, though, that just because a company is doing well right now, that doesn’t mean that will always be the case.
9. Consider Low-Cost Stocks
You don’t have to have a lot of money to start investing in the stock market.
There are lots of low-cost stocks (some that cost less than $1 per share) that are great options for new investors.
You can learn more here about low-cost stocks that are expected to grow substantially in the near future.
10. Set it and Forget it
Finally, avoid checking on the state of your investments too often. Once per quarter is usually plenty for most people.
If you adopt a “set it and forget it” attitude, you’ll be less likely to act on emotion and make rash decisions that affect your future earnings.
Need More Stock Investment Tips?
Investing in the stock market can be intimidating at first. You don’t have to be afraid of investing, though.
There are lots of steps you can take to invest in stocks the right way.
Keep these stock investment tips in mind to make sure you’re managing your money effectively and getting the greatest returns on your investments.
Do you want to learn more investment and general money management tips? If so, we’ve got you covered.
Check out Money and Finances section of our website today to find all kinds of helpful articles that will turn you into a money master in no time at all!
