The stock market is this vague entity that seems to exist in the clouds for some of us. “I made my money in the stock market” you may have heard before. But knowing what this means and how to make your money grow for you on the market is vastly important.
Investing can be a daunting task and for good reason. There are so many different aspects, so many funds, so many things that can be done that it can be easy to get lost and have no idea what to do with your money or how to behave towards the stock market.
These are a few tips of note for those just starting out with investing in the stock market.
Make Sure to Set Long-Term Goals
Knowing why you’re saving money is perhaps the most important step. Are you saving money for retirement, future college expenses, to build an estate, to purchase a home, or some other sizable expenditure? Knowing the purpose for your investing is key.
When you have goals to work for, you don’t feel like your money is disappearing into the ether. You know where it’s going and why it is going there. This helps you to stay focused on your savings goals and not stray far from the path.
Know Your Risk Tolerance
“Risk tolerance” is a term that you will hear come up when you begin investing. This is what it sounds like: how much risk are you willing to take with your money? The greater the risk could mean the greater the reward but with every upside there is a downside. You could lose that money; would you be okay if that happened?
Knowing your risk tolerance allows you to decide which types of funds to invest in. If you are lower risk, you would likely invest in bonds that would generate lower, but consistent, returns over time. This will also affect how you set your goals.
Avoid Leverage Where Possible
Leverage is essentially a loan to execute your stock market strategy. IE: You want to buy 100 shares of a stock totaling $10,000, but you only have $5,000. Your brokerage firm would cover the other half but in the event of a gain or loss, you are on the hook for those funds. If you make a profit, it’s not a big deal but if you take a loss, you still owe the interest to the broker. Avoid this when possible.