Once you have some money saved, investing feels like the sensible thing to do. In order to make the most out of your money, you need to do your homework. Use these five tips to help you succeed as a new investor.
1. Stop Chasing Hot Tips
Movies portray investing to be about hot tips and riding waves, but it rarely works that way in real life. Unless you have real industry connections, it’s incredibly unlikely you’re going to come across stock tips that are going to change your life. Don’t beat yourself up if a stock a friend recommended ends up going up and you missed out. Investing your money is about finding a strategy you can live with, not chasing money.
Before you invest in any company, you owe it to yourself to do your due diligence. You can use tips from your friends and family to find new companies to research, but they shouldn’t be deciding factors. If you think you’re going to find tips to triple your portfolio in podcasts and newsletters, you’re going to be disappointed.
2. Maintain A Long-Term Perspective
Losses aren’t a big deal when you invest with a long-term perspective. Whether you’re day trading or just holding stocks, thinking long term is always best. Even when trading options, you’re better off buying calls further in the future unless you want your profits eaten by time decay. GIC rates may seem low until you look at them from a 10 and 20-year perspective.
When you trade with a long-term perspective, it’s easy to be confident in your moves. You should trust in your research instead of worrying about the inevitable short-term movement of the market. In order to maintain a long-term perspective, you need to do your research on individual companies and develop a strategy for how you want to use your money.
3. Act Within Your Risk Tolerance
The simplest way to keep stress under control is only to make trades within your risk tolerance. If you’re the type of person to obsess over your picks and can’t handle loss, limit yourself to small trades. Look for a strategy that works for you that you can stick with. Day trading isn’t necessarily better than buying and holding stocks. You may be more interested in the best GIC rates than option prices.
4. Stay Calm
Making emotional decisions about the market is guaranteed to get you in trouble. Stocks are always going to have movement in the short term. It’s essential not to overreact to this movement and stick to your investment strategy. If you trade within your risk tolerance, it’s easier to keep your emotions under control.
Again, doing your due diligence is essential to helping you stay calm. If a company goes up 20%, you’re automatically going to think to yourself that there’s no room for growth. However, if you do your research, and the company has sound fundamentals, and it’s still undervalued, you stand to more than triple your money by making a decision based on numbers, not emotions.
5. Learn The Basics First
Most people get into trouble by failing to do their homework. Investing is exciting. It seems like there’s a fortune to be made around every corner. While it’s very possible to have your money do wonderful things in the market, it doesn’t happen by accident. Successful investors all have a high level of understanding of their trade.
Before you get started, make sure you understand basic terms such as earnings per share, return on equity and the P/E ratio. You should know how to look up a company’s 10k report, how to read the report and what to look for. You should also have a good idea of the different types of stock market orders and the fees you’ll have to pay for your investments.