If you are like many others wanting to start investing in the stock market and have some money you would like to invest for the very first time, you should be prepared. Even though it is not a clear science, one can never be too prepared, especially if it is your first time investing. A lot of people take on the ‘leave it to luck’ approach, or simply put all their money in a stock that is doing great right now, which can be detrimental. Never fear when The CBT is here! We’ve got loads of experience and some neat tips for beginners.
In this article, we look at some of the key principles you need to start applying before you invest in anything. Let’s get started.
Get Investment and Stock Market Savvy
Firstly, you need to know and familiarise yourself with stock investment terms and how everything works. If you have no idea what you are doing, you increase your risk, which is what you want to try and avoid at all cost. Learn the basics and you should be fine. Things to specifically focus on include:
Metrics and definitions
Methods of timing and selection
Follow this link for a detailed guide for beginners who want to invest in a stock.
Identify Your Goals
Merely investing for the sake of investment is not reason enough to just throw your money into something. This is true with anything in life. Know exactly what you are investing in and why you are doing so. This will determine whether you have long- or short-term goals. If you are going to need the money sooner rather than later, investing in the stock market might not be the best idea. Knowing what your goals are will also assist you in deciding how and where to invest.
Your portfolio growth will depend on the following factors:
- The amount you decide to invest
- The duration of your investment (how many years)
- Net annual earnings on the investment
Investing in stock can be a stressful activity to some people, depending on their risk tolerance. If you are not familiar with this term, you should get comfortable with the fact that everyone has a level of risk tolerance. It basically means that the less you are likely to risk, the lower your risk tolerance. The more you are willing to risk, the higher your risk tolerance. Before investing, understand that you have a risk tolerance and know what yours are, this will allow you to avoid stressful situations in terms of worrying about your investment.
This goes for emotions as well. If you are unfamiliar with the stock market, you should know that it is a game of risks and emotions influence the price of securities. Know how much you are willing to risk, what you want to achieve, and this should give you a clear idea of when you should bank in on your investment and sell your stock.
Expand your Investments
According to the pros, it is always best to spread our investments far and wide, as this will also minimise your risk. This allows you to cover potential losses, should stock that you have invested in perform poorly while other stock you invested in performed very well. Instead of investing all your eggs in one basket, and risking losing everything, you now have an opportunity to grow your portfolio either way.
Give Leverage a Miss
We always advise against utilizing leverage to those only starting out in stock investments. Leverage is a tool, offered by brokers, and basically means that you borrow a certain percentage of money from them in order for you to buy stock. The downfall of this is, if the market crashes or the stock does not perform well, you have lost all your input and still owe the bank or broker the amount borrowed from them, including interest.
We hope you have found this short guide helpful and that you will become a stock investor extraordinaire in no-time. Looking for a great resource for stock investment? Read this guide. If you are interested in learning more about personal banking and finances, read our article on the best personal finances and banking blogs for 2018.