Some of the most common questions all novice investors have are what stocks to invest in and when is it OK to make changes to your portfolio. Establishing investing goals will go a long way in helping you answer these questions, as well as preventing your emotions from taking over.
What you may find surprising is how much your emotions can end up guiding your investing decisions. For example, in a volatile market you may be tempted to reduce your losses by taking money out of your portfolio. On the other hand, in a bull market it’s not unusual for investors at all levels of experience to load up on shares. And since the market has been strong since spring 2009, it’s human nature to feel like the good times are here to stay.
We’ve come up with some basic investing rules and advice that will help you keep emotions in check.
Establish Your Investment Goals
Of course you’re hoping to increase your personal wealth, but to what end? Are you planning to use this money for retirement, college tuition, or is it just spending money? Once you know what you want to achieve with your investments, you can then determine whether you should be an aggressive, conservative, or cautious investor. Use your knowledge of how much risk you’re comfortable with to determine what type of stocks to invest in.
Use Investment Tools
The market moves at the speed of light. So rather than obsessively checking your positions, use tools that the professionals have developed for this purpose. Using tools like an investment calculator will help you determine when to buy or sell, based on your trading preferences. Say goodbye to midnight buying sprees and the regret of morning buying hangovers. You get an actual layout of the potential that your investment plan has before you even decide to invest, plus trading stops that you establish. It’s that easy.
Make an Investment Plan
Do you know what your risk tolerance is? That’s important to know because if you’re bored by slow and steady growth or overly stressed by rapid ups and downs, you may be setting yourself up for failure by putting your money into volatile stocks.
Research the types of investments most suitable for achieving your investment goals.
Diversify Your Investments
Financial advisors agree that to improve your chances of getting better returns, you have to diversify. Don’t just put your money into different types of stocks, but also different sectors all together. Is there one type of industry you know inside and out? The experts suggest also suggest investing what you know.
How Hands-on Do You Want to Be?
As an investor, you can decide to be hands-on with your investments or choose options that require less of your time. For instance, if you’re confident in your investing skills, consider opening an account with an online brokerage agency. If you want more guidance and one-on-one assistance, get a referral from a trusted friend for a stock broker. Note that you do not need a stock broker to keep up with investing news. Reading up on investing news a few minutes each morning will get you up to date on trends and breaking news.
If you’re not sure what type of investor you are or what funds to choose based on your goals, it’s advisable to seek financial advice.
If you become really successful at investing, consider owning chunks of other peoples companies you could always become an angel investor.
Know the Costs Involved
Every investment will have charges or fees. If you’re buying shares directly, you’ll have to work with a stockbroker service and pay a certain amount of dealing charges. For investment funds, there are fund manager charges. Just remember that investing is a business like any other. If you have trouble finding information about fees, move on to another service.
Always have the charges explained when talking to investment companies before you commit your money. You need to be sure the charges are reasonable and worth the investment.
Some Quick & Dirty Investment Tips
The main goal of investing in the stock market is to buy low and sell high. But you will do the exact opposite if you let your emotions get their way. So make it a rule of thumb to check your portfolio periodically — somewhere between once a week to once a month — but never make investing decisions based on recent performance of your stocks. Most importantly, keep up to date with latest quarterly results and business news. You chose to invest in the Acme Company for very specific reasons. Has anything changed? That’s what you should base your decisions on – hard facts.
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.