Originally Posted On: https://ventsmagazine.com/2020/01/19/invest-intelligently-6-tips-for-buying-stocks/
The thought of investing your retirement money or any hard-earned money in stocks can be scary and daunting. You’ll constantly think about losing out or watch the charts if they decrease.
However, stock markets are still helping multiple Americans make money. It also doesn’t take a lot to get started in the right direction. You only need the right tips for buying stocks to help you do it right.
Here are 6 tips that will help you take advantage of what the stock market has to offer.
Evaluate Your Financial Situation
It’s important to assess your current financial status to know if you have enough funds for your investment. If possible, start investing when you have little or no debt and at least money to cover your expenses for a while.
This will eliminate the pressure and worry, which may lead to investing in short-term trades. It will also give you the flexibility to purchase more at a time and try out different strategies.
Think Long Term
You definitely have to decide what you want to accomplish by learning tips for buying stocks. It may be buying a home, accumulating your college fee, or topping up your retirement fund.
It’s important to know at what point you’ll need your money. If you’ll need the funds in a few years, consider finding a different investment.
Stocks provide significant returns when left for many years. Yet in the short run, they can be very volatile and can lose value. This is why it’s advisable to leave your stocks in the market for more than five years -the longer, the better.
The growth of your stock depends on the following:
The size of your capital
The net annual earnings of your capital
The number of years of your investment
Take Advantage of the Compound Interest
You’ve probably seen the point on investing stock for years for better results on all tips for buying stocks. Understanding the concept of compound interest will make it a bit clearer for you.
Here’s an example:
If you invest $2000 and your return is 8% per annum, your money will have accumulated to $2160 by the end of year one.
In the second year, your capital will no longer be $2000 but $2160. This means by the end of the second year your money will grow with $172.80 instead of $160, accumulating your total to $2332.80
This may not be a significant change in the first years, but as the years pass and your capital grows, your investments grow to something substantial.
Build up Positions Slowly
Most successful stock investors buy stocks with the hope of reaping benefits through dividends and share price appreciation over decades.
You can also take your time buying as well. Here are tips for buying stocks that will moderate your exposure to price volatility.
Dollar-cost average. This is a strategy where you invest a certain amount of money at regular times. It may be weekly or monthly. The set amount of money buys fewer stocks when the stock market rises, and buy more when the prices go down.
Buy in thirds. This is somewhat similar to dollar-cost average. You set your money into three thirds and invest it at regular intervals. It doesn’t have to be based on time.
You can invest the first third, right before a company releases a new product in the market, and the other third if it’s a hit. If it’s not, you can invest the remaining amount into something different.
Focus on Arbitrage. Learning about stock arbitrage is very beneficial. It’ll help you to identify opportunities that are widely undervalued.
Buy “the basket.” It’s normal to be stuck in multiple companies trying to decide which one you should invest in. If you find yourself in this position, buy them all. By doing this, you won’t be missing out if any of them takes off, and you can use the profits from it to offset any losses you may have.
With time, you’ll know which company is the best and double down your investment in it.
Don’t Get Emotional
One mistake investors make is letting their emotions control their investment decisions. Many longtime investors will tell you that one of the most beneficial tips for buying stocks was to not get emotionally involved.
Journaling can help you stay intact during these hard times. Write why you decided to commit to every stock in your portfolio.
Here’s some journal prompt for goal re-focusing examples:
Why I’m buying. Explain what attracted you to a company and the potential you saw in it. Next, state your expectations and metrics that measure the company’s milestones. Lastly, spell out what pitfalls may be temporary, and which one may be a complete game-changer.
What would make me sell? There are viable reasons that may make you split from a company. The reasons shouldn’t relate to the stock’s fluctuation. But something that may influence the growth of the company, such as the withdrawal of a significant client.
Learn About the Basics Before Investing