Before you start thinking about investing your money in stocks, you need to save a considerable amount of money as a backup. Do not start investing until you have a secure job with a reasonable monthly income or cash worth at least a year expenses in your bank.
The world of stocks can be a risky business. The general rule is that if you don’t have solid reasons to invest in a stock, then don’t.
Practice Makes Perfect
Make sure you have enough practice of trading in the financial markets before you jump headlong in to the action. You can use virtual ‘Paper trade’ services that let you buy real life stocks (up to 40) which you can trade in real life situations. You can win and lose stocks according to the actions you take.
Create Your Own Stock Brokerage Account
Stock Brokerage business is tricky. It’s hard to find a credible broker in a short. With experience, you will be able to identify the good brokers than the not so good ones. Make sure you check out the background information (website, reputation) on a broker before signing up with them. Costs of the broker are also a major factor in deciding which one you should chose. Some discount traders charge as low as $1/trade commission but the general market rate is about $10/trade.
Start with a small number of stocks (25-50)
Start with Small Number of Stocks (25-50)
Do some research on the companies whose stocks you have an intention to buy. Make sure their past performance records are strong in both good and the bad times. Check out their dividend rates and interest rates to get an idea of their performance and credibility. It is best to buy around 25-50 stocks initially and then slowly work your way up. Using up to information from value investing websites is also a good idea. But if you don’t have the time for research, the best bet is to go for low expense index funds that have the lowest expense ratio and annual turnover. However, if you have an amount greater than $100,000 to invest, you are recommended to invest in individual stocks rather than mutual funds.
Make Long term Holding Strategy
Do not sell off your stocks when you see the market going down. Resist selling even if the market remains low for an extended period of time. Same is true for when the markets are up. Use only that money to invest which you would not require in case of emergencies. Only then you can truly benefit from a massive stock appreciation. That will only happen if you keep holding on to a stock for a long period of time.
Ignore Tips from Insiders
Never listen to what the so called ‘experts’ have to say about the market conditions and health of the stocks. The reality is that they even themselves don’t know what might happen in the future. Amateur investors do fall prey to their sweet talk which in turn profits the companies and their stocks.
Keep Buying Stocks at Regular Intervals
Set yourself a target to set aside a given amount of money, say a $1000 for the purpose of investment in stocks. Keep buying stocks at low rates. Make sure you save some amount from every stock trade in to a savings account. Do not worry about market crashes. Markets tend to catch back on their normal levels even after the worst of situations.