Online trading brokers like ETrade and Charles Schwab welcomed more than 4.5 million new accounts in the first quarter of 2020.
Most of those accounts were opened by novice investors looking to make a quick buck from the stock market to offset losses from COVID-19.
That turned into a big mistake for many of those newbie investors. They didn’t look for an investment tip or two before they traded stocks. A lot of those investors lost money because they didn’t know what they were doing.
You can avoid a similar fate by looking at the stock market in a different way. Do you want to learn what smart investing looks like?
Take a look at these stock market tips and learn how to invest wisely.
- Settle Your Finances
Stock market investing isn’t a get rich quick scheme. It’s meant to build wealth on top of financial security.
Take a close look at your financial position. Can you afford to absorb stock market losses? If you can’t, then make sure that you take care of your financial situation before you start trading.
Make sure that you have plenty of emergency savings. Emergency savings should cover at least 6 months of expenses. Clear out all other high-interest debt, such as credit cards.
These two steps will give you the freedom to trade stocks. You won’t have to worry about making a successful trade in order to pay your mortgage bill.
- Which Market Do You Want to Invest In?
There are many ways to trade stocks. Most investors will start trading on certain stock indices. You can invest in the New York Stock Exchange, NASDAQ, or S&P 500. You can also invest in indices in other countries like the TSX (Toronto), FTSE (London), or IBEX (Spain).
Once you have your market picked out, you’ll then pick an online broker. Be sure to weigh the costs per trade, ease of use, and features of the platform.
- Set Trading Goals
What are your goals for stock trading? You must ask yourself this question because it will dictate your trading strategy.
If you want to build a retirement fund over 30 years, you can afford to be conservative in your trades. If you want to make money over the next few months, then you’ll invest more aggressively.
- Learn to Research Stocks
The difference between wealthy investors and ones that lose money is that wealthy investors carefully evaluate each trade. The ones that lose money invest in the stock market the way they bet on horse racing – they only look at the odds or the jockey.
Investing with limited information is a sure way to lose money. Instead, look at a company’s 10-K and 10-Q statements. Evaluate the risks of buying that stock. You’ll want to look at other factors, too.
The business model, revenue, and cash on hand are all signs of a healthy company. A company may have record numbers in sales and profits for a quarter. Yet, if they don’t have enough cash on hand to survive a slight downturn, the company could face restructuring.
That became apparent during COVID-19 shutdowns. Airlines are all bullion dollar companies, but they didn’t have enough cash on hand to survive a few months.
- Turn to Experts and Mentors
Warren Buffet is the Wizard of Omaha. He’s also called the Oracle of Omaha. He earned those names by successfully investing in stocks over the last several decades.
He’s had such a remarkable run people look for Warren Buffett stock market tips. You should take a page from them and seek out successful investors for advice and insights on the stock market.
Does that mean you should listen to every person on TV who insists that a certain stock is a sure thing? Absolutely not. Take the advice you see on TV as a small part of your research.
Stock market mentors are good to have on your side, especially when you first start investing in stocks. Look for investing groups in your area and get to know different investors.
Many are willing to show you the ropes of market research and trading. You can shorten the learning curve to become a successful investor.
- Be Diverse In Your Investments
You should never, ever put your investment money into one stock or one type of stock. That’s a risky proposition because if that industry or company fails, you lose your money.
Protect your money by creating a diverse portfolio. You should assess how comfortable you are with risk and divide your portfolio accordingly.
For example, if you can only take a little bit of risk, you may want to have a small portion of your investments in company stocks. You can add other investments that are steady like mutual funds and
- The Most Important Investment Tip
The reason why the stock market is so volatile is that it is based on emotion. Something happens, and investors react immediately.
The president tweets something about an adversary. The stock market reacts. The weekly jobs report comes out. The market reacts.
Your singular job as an investor is to take the emotion out of each trade. Don’t react to a short term report. Evaluate it carefully and decide to buy or sell a stock based on data.
Remember that the market will always go up. You’ll need to carefully evaluate individual stocks to see if they will recover or not.
The Best Advice for Investing in Stock
When you invest in the stock market, you should take the time to implement at least one investment tip from this list.
It’s important to be in a solid financial position before investing in stocks. Take your time to research different stocks and learn how to know if a company is truly healthy or not.
Click on the Finance tab at the top for more financial tips and insights.