Hi Taylor - I’ve been setting aside money that I want to put into stocks… but I’ve recently realized I have no idea how to do that! I’ve done a little research but it’s mostly made my head spin, so I’m hoping you might have some advice for a beginner. What’s the best way to get started? - Mindy
Hey Mindy - There’s a ton of info out there, isn’t there? I’ve spent countless hours investing in and researching the stock market, and there are still times when I’m left scratching my head. There are a lot of different ways to approach this market, so I’ll give you a few general concepts that I find useful.
1. Don’t day trade. I strongly, strongly advise you to stay away from this practice. While a few people have enough experience and insider knowledge to make day trading work, the vast majority of people end up losing money this way. It can be fun and exciting and you might hit a big winner, but doesn’t that sound the same as playing roulette in Las Vegas? I don’t recommend this type of investing to anyone, let alone someone who’s just getting started. The stock market should be used as a tool to grow your money, not as a get-rich-quick scheme.
2. Know who you’re investing in. You don’t need to know them personally, but, at the very least, you should know a few things about the company of which you’re becoming a shareholder. It’s easy to get excited about hot tips coming from so-called experts, but you don’t know exactly what motivates these experts to give those tips, nor do you know if they’re actually experts. If you do your own research and learn about well-run companies working in blossoming markets, you can make educated decisions that are more likely to pay off. It’s best to buy shares in a company you like; that way you won’t be overly tempted to sell too quickly.
3. Don’t overdo it. I keep about a third of my investment capital in the stock market. Every broker everywhere will tell you about the importance of a diversified portfolio, and I think that applies to your overall investing strategy. Don’t put all your savings into stocks, and instead keep it to a moderate portion of your funds. This is a safer way to spread out your money and allows you to take advantage of other investment opportunities that offer benefits Wall Street can’t match. I’ve noticed that this approach helps people resist over managing their shares, which can be a dangerous and costly habit.
The stock market is a great tool for people who can show restraint and make informed decisions. Asking questions is a great way to start, Mindy, so keep up the good work!
Taylor Kovar, KovarCapital.com