How do you start investing with peace of mind?
Learning the fundamentals of investing in stocks is the most effective way to begin making money and achieving your financial goals.
I have seen people jump into investing without having the basics down and the consequences can be devastating — imagine having the savings you have worked so hard for disappear.
That’s why I want to share how to get started and be successful.
So before you put a single dollar to the market, first understand the following principles of the stock market.
Be Patient and Think Long-Term
The secret ingredient in the recipe for successful investing is patience. We have to be willing to hold on while our money grows.
The key is to buy stocks in companies that are thriving and holding on to the stocks for the long-term. These are strong companies with great leadership and competitive advantages.
What’s great about this is they don’t even have to be checked upon all the time because they are reliable — they have a track record for performing well financially and have a manageable level of debt, which means in the long-run, they are resistant to short-term fluctuations in the market.
And the truth is, this way of approaching investing is more effective than any others out there.
Why 99% of ‘Investors’ Generally Lose Money
There are many people who believe that the main ingredient to success in the stock market is day trading.
Those with this belief think that this day-trading method is going to rapidly make them wealthy by frequently buying and selling at small profits, which will eventually add up.
Unfortunately, this is not the case.
The sobering truth is that these investors generally lose money. In fact, less than 1% actually wind up making money on a consistent basis, and there are a few reasons for this…
Reason #1: Frequent Trading = Frequent Costs
Well, first of all, buying and selling comes with costs – such as fees, taxes and commissions.
So it only makes sense that the more frequently you trade, the more of these costs you have to pay, which eventually all take a chunk of your profits.
Reason #2: Trading Short-Term = More Fluctuation and More Emotional Attachment
Also, very short-term investing could be compared to walking into a casino and gambling away our money.
In the short-term, the fluctuation of share prices is random and unpredictable. Plus, just like in a casino, it is difficult to stay emotionally detached. Getting caught up in emotions can cloud our rational mind and create a doorway for costly mistakes.
➜ Related Post: 6 Emotions That Get In The Way Of Your Investing / Trading
Reason #3: Trading Short-Term Makes You Forget you are Buying and Selling Real Companies
When we are frequently trading, we lose sight of the relationship between a company and its stock.
When we invest for the long-term, the stock prices tend to move in the same direction of the company. So, if the company is doing well, we can be relatively confident that the stock will too.
Seeking out companies that will successfully lead us towards meeting our financial objectives in the long-run is worth it.
Choosing Stocks
There are some choices when it comes to picking stocks.
One way to go about it, the simplest way, is to purchase an exchange-traded fund. These types of funds own all of the stocks in a particular index such as the S&P 500 or Dow Jones.
The other method is to purchase individual stocks. While this does carry more risk than the first option, it also opens up more opportunities for reward. So, choosing a good stock could make us rich over time, but, on the other hand, it could also cost us our whole investment. When choosing this method, it is essential that we maintain a diversified portfolio with a variety of stocks so that should an unanticipated scenario arise, not all of our stocks will be in jeopardy.
There are a number of strategies we can employ when choosing individual stocks. We may focus on dividend-paying stocks in order to give ourselves some security. Dividend-paying stocks, coupled with a steady income, can meet our need for cash or it can be used to purchase additional shares. We can also become value investors. This means investing in stocks that are underappreciated and whose prices are lesser than the actual inherent value of the company. One of the most famous of them is, Warren Buffett and it would be an understatement to say that this provided him with some very high returns over time.
If we opt for investing in higher-risk businesses, there is a higher possibility that the rewards will be bigger too (if we find the right company). On the other hand, by investing in a smaller business, we can find things out about that company while it is still young and that may help us to gain higher returns than an established company. This is because once a business has been around for a while, more and more investors will discover it. Generally, stocks that have the most potential for growth don’t fall into one particular category. So, even if other investors start to become aware of the smaller company we decided to invest in and that brings the share-price up significantly, it could create future opportunities for even higher returns.
There Is No Right or Wrong Way – It’s A Personal Preference
Our willingness to tolerate risk and our personal preferences will influence how each of us decides to employ these methods.
Some of us may decide to go with one method and invest in a group of diverse stocks within a specific category, while others may choose to use more than one method to create a diverse portfolio made up of multiple, but different types of stocks. There is no right or wrong way to approach it in this case. We just have to feel at ease with the plan we choose and be able to stay with it for the long-term.
Many of us shy away from investing because we just don’t have the knowledge we need to get started. I can assure you that nobody will make money from the market without investing. Learning the basics of investing and then doing it will create many opportunities to reach our financial goals.
Want To Learn How To Invest In Stocks With Peace Of Mind?
If you’ve finished this blog, and you’re considering learning how to invest in a diversified portfolio of individual stocks, I’d like to invite you to my FREE upcoming online Masterclass.
It’s a highly interactive 90-minute class, complete with your own downloadable workbook.
I guarantee you’ll walk out of the Masterclass with a completely different filter of the trading and investing world.
If you’d like to join me, book your spot here, and I’ll see you on the other side.
Terry
