Stock Market Do’s and Dont’s

Photo by markusspiske, CC0 1.0

You have decided it is time to start learning about the stock market and how the investment process works. Before you jump into the mix it is important that you understand that the stock market is full of do’s and don’ts. Try to keep each of these in mind as you being your investment journey. Take the time to learn the ropes, learn what buying and selling is like, how to invest properly, and what your best course of action is as a beginner. It is also important you look into investment portfolios that manage your investments. This makes the investing process much easier and you can focus on the important stuff.

Follow the rules outlined below as you being your stock market journey.

• Do Research, Research, Research

The most important thing you can do is research. Make sure you look at every stock or fund you want to invest in very closely. Read articles, magazines, blogs, listen to TV shows or radio shows about investments. Do everything you can to understand the investment process and what the best course of action is. Make sure you understand what a high risk stock is and what a low risk stock is. It might be worth it to start with low risk stocks to until you fully understand the buy and sell process and how risky some stocks can be. Also, consider working with a financial advisor who can help you. Do not invest in something without doing your research first.

• Do Diversify Your Investments

It is very important that you have a diversified investment portfolio. This is the most profitable and safe course of action. Understand that diversified means that you have a number of investments and various types of investments. Many new investors forget that you need a nice mix of investments so that when bad things do happen you have various stocks and you do not get hit all at once. You can easily ride out the bad times because you have a cushion. This means you need to invest in various companies, industries, geographies, and market sizes. This is the best way to protect your investment and give you the best set up for success.

• Don’t Invest With Emotion

Do not be your own worst enemy. Following your emotions can be very damaging. This means you cannot make buys and sells based on fear, panic, or greed. Stay on course and follow your research. The more you follow emotion the more likely you are to lose money. Do not pull out too soon and also do not get too confident. Make calculated decisions about the stock itself, not your emotions.

• Don’t Rely on Wall Street Hearsay

Wall Street analysts are known for being overly optimistic. It is their job to sell investments and they cannot afford to disrupt business. For this reason they tend to over exaggerate strategies and possible recommendations. In fact, studies show that only 1% of their 5% recommendations in the 1990s and 2000s were ‘sell’ recommendations. Remember this if you hear or see Wall Street recommendations. You simply cannot rely on their investment analysts as a good guide. Take what you hear as a grain of salt and move on.

• Do Have Savings

Although investing in the stock market is a great long-term strategy. You still need savings for emergencies that happen now or next year. It is important that you have cash savings that are separate from your stock market investments. Do not invest in the stock market until you have a separate cash savings account set up to keep you from falling victim to additional debt from emergency doctors’ visits, car repairs, etc. Try to build up a nice $10,000 savings account before you start investing into the stock market.