Looking to play the stock market? This is something that many people are interested in yet often they will not start because it can be quite intimidating particularly if you do not have much knowledge of how it works. This is a shame as playing the stock market can be highly lucrative and help you to achieve your financial goals, plus it can also be good fun and a great way to spend your spare time. There are risks involved (which adds to the excitement), but you can reduce these risks by having a firm grasp on how it works and by following these tips.
Opening An Account
In order to invest in stocks, you will first need an investment account. This could involve opening a brokerage account if you want to handle everything yourself, but if you want guidance (a good option for new investors), then you should look into opening an account with a Robo-advisor. A Robo-advisor is software which acts as a financial advisor which makes recommendations based on a complex algorithm – this can be highly effective because it completely removes emotion from the equation.
Following on from this, if you are just starting out and/or you only have a small amount of money to work with then opening an account with a Robo-advisor is a smart move. This is because they will do all of the hard work for you and help you to achieve your specific financial goals once you provide key information such as risk tolerance, age, and retirement date. Additionally, Robo-advisers are typically much more affordable than the services of a brokerage, and often there is no minimum for investment.
Understand How It Works
Many people like the idea of investing as it sounds like a way to make money without much work, but in order to succeed you need to understand how it works. When the demand for stock increases and people want to buy as opposed to selling, the price of the stock will also rise as each share becomes more valuable. Demand increases when a company succeeds so you will want to invest in businesses which are on the verge of growing, but there will always be risk attached. Dividends are a good way to earn passive income over a long period of time as these are payments made by the board of directors in order to keep investors happy when stock price does not rise.
It is also important to know about the two main investment types before you begin playing the stock market. Stock/equity mutual funds or exchange-traded funds are mutual funds which allow you to buy small pieces of different stocks in one transaction. Individual stocks, meanwhile, involve buying a single or multiple shares in one specific company. Stock mutual funds enable you to diversify your portfolio easily which is key for reducing risk but does mean that you may not get the same sharp rise that you can get with individual stocks. If you are looking to build wealth over a sustained period of time, then mutual funds will be the route to choose.
Establish A Budget
It is an intelligent idea to establish a budget before you start investing so that you do not overspend and so that you can control your finances. The amount that you need to spend will depend on the prices of shares and mutual funds often have minimums of $1,000+, but exchange-traded funds trade like stock so you should be able to buy them for a share price which can be as affordable as around $10.
Set yourself a clear long-term financial goal for your investing so that you always have something to work towards and so that you can figure out the best type of investments to make. Investing should be viewed as a way to earn money over a long period of time, so if you are looking to make a fast buck, then this may not be for you.
Look For Guidance
There is a huge amount of helpful information when it comes to selecting the best stocks to purchase, but there is also a lot of unhelpful information, so you need to make sure that you are taking guidance from reputable sources. The Tom Gentile Money Calendar review is an excellent resource as Tom Gentile is considered by many to be the top trader in America and has helped thousands of people to achieve their financial goals through his knowledge on stock picks.
Use Your Head
Although it is highly worth seeking advice from experienced investors, you should also use your head and avoid following the crowd. You should be carrying out your own research and using a variety of sources and common sense to drive your decisions. Following the crowd is not the smartest move to make as this is often too late and there is often a lack of understanding of the company/industry which can be dangerous.
Know When To Quit
Even the best investors have stocks which will not perform as desired. The main difference is that the great investors know when to quit in order to reduce losses. It is unlikely that there will be a turnaround any time soon, so you should know cut your losses when it looks like that the value will not rise or if it starts to fall below the moving average.
Playing the stock market can be an excellent way to earn money and build wealth for a brighter future, plus it can also be highly enjoyable and a good pastime. It is important that you have a firm grasp on how it works and to have patience in order to succeed and the above information should help any beginner to get started. There is always an element of risk attached to the stock market which means that you need to know your tolerance and only ever invest money that you can afford to lose.