Global stock market value reached record highs of $95 trillion in 2021. Investing in the stock market lets you own stakes in some of the most lucrative companies in the world and can end up being extremely profitable. The S&P 500, for example, offers a 10% annual return on average. If you’re new to the world of investing, it’s important to be smart and strategic about how best to make worthwhile investments that help grow your finances in the long run.
Avoid individual stocks if you’re a beginner
When you’re a beginner investor, it’s best to steer clear of individual stocks. Although there are people who do consistently make money with individual stocks, you’ll require expert knowledge and skill to better avoid the big downturns. Instead, index funds like mutual funds or exchange traded funds (ETF) are a safer alternative. ETFs like S&P 500 or NIFTY hold multiple underlying assets, whereas mutual funds pool together money from numerous investors. These funds can hold anywhere from dozens or up to hundreds of stocks. When you purchase a share, you then partially own all companies included in the index. Fortunately, advisory services are also available to help investors make informed decisions on where to put their money. For example, Motley Fool Augmented Reality is a stock-picking service that helps people discover the best opportunities in this emerging tech space. Tech investing is a lucrative opportunity and, by staying up to date with the latest AR happenings, you can potentially make huge returns with the top picks in this area.
Build a diverse portfolio
Diversification is essential for reducing risk. With a diverse portfolio, the impact of one poorly performing stock on your overall performance is lessened. When you just buy one individual stock, on the other hand, you’re essentially putting all your eggs in one basket. Again, mutual funds or ETFs are simple ways to achieve a diverse portfolio with little effort on your part.
Focus on the long term
Stock market investing isn’t a get rich quick scheme. It requires patience and a long-term approach that can’t be easily swayed by emotions. For that reason, it’s usually a good idea to avoid the daily financial news and checking your portfolio too often; this will help you better manage your emotions and stop you prematurely selling a stock at a loss during volatility, meaning you ultimately don’t get to reap the benefits of a well-performing investment. In fact, investors are advised only to invest in the stock market if they’re able to do so for at least three to five years. Short-term investors (like day traders, for example) often end up losing money as buying and selling stocks regularly quickly becomes expensive (a short-term CD or savings account may be better suited to short-term money needs).
Stock market investing doesn’t have to be intimidating or complicated for beginners. By opting for index funds over individual stocks, diversifying, and maintaining a long-term approach, your efforts will successfully pay off.