I decided to start this blogging journey with some tips about investing in the stock market. These came from a casual discussion with my co-workers after they wanted to get started investing and came to me for advice. Let's dive in to the six key things you should always keep in mind when investing in the stock market:
1. You should only invest the money you can afford to lose
If you don't have an emergency fund built out or if you need this money in the next 5 years, don't invest in the stock market. Keep this money in a high yield savings account or pay down debt instead.
2. Stocks involve risk
Stocks will go up and down and no one can guarantee a return on investment. Try not to look at the ticker every day. I know, it's hard. While past performance is not always a guarantee for future returns, stocks typically provide a 7% return on your money on average. Strive to be a long-term investor.
3. Not all of your stock picks will go up
You will have some losers. If you can't stomach the volatility, invest in low-cost ETFs or mutual funds. This is still the best way to diversify your portfolio. You should still get (on average) 7% return per year and a decent dividend yield.
4. Automate your investing as much as possible
Automation takes the emotion out of investing, and stops you from making costly mistakes. Don't try to time the market. it's impossible. Nobody knows the top or bottom of the market. Leverage dollar cost averaging.
"Time in the Market beats timing the Market"
5. Invest in Companies and Services you understand and believe in
It always amazes me when I ask an investor why they picked to invest in a specific company or stock and they don't have an answer. Think about the products/services you use all the time and you plan to continue using despite economic conditions. Understand their business models and analyze the company using fundamental analysis. Despite others that may tell you that technical analysis is superior, analyzing trends in a companies revenue, profits, cash flow, etc. is still an important aspect of choosing companies that have an advantage over their competition. This will lead to a better performing and robust portfolio.
6. Never stop learning While I have spent the better part of my adult life learning about personal finance, there is always more to learn! I recently began using stock options to create cash flow by selling calls and puts. I am still learning from others and my colleagues use different option strategies to create thousands of dollars in cash flow a month! There are a ton of resources out there including free webinars that will take you through real trades.