Since the S&P 500 index was conceived back in 1926, the stock market has offered historical annual returns of 10%.
Inflation may cut that down to 7-8%, but that makes the market no less powerful a draw for anyone seeking high returns. Americans have few opportunities like the stock market to create their own long-term wealth—but that doesn’t mean the stock market is without its risks.
If you’re a beginner, the complexity of investing can seem overwhelming. Fortunately, a few simple stock market tips can help you get in the right mindset to dive in.
1. Outline Your Long-Term Goals
Everyone who invests sets out to earn money, but you’d be surprised at how helpful it is to outline your long-term goals as you start.
Whether you’re saving for retirement, college, or a home, it’s crucial to know what you want from your investments. This, in turn, can help you decide when you’ll need your money back, what kinds of risk you can tolerate, and even what kinds of funds to invest in.
As with all of our stock market investment tips, this one will require a little thought on the front end. You may want to check out online tools to help you learn more, from a retirement calculator to help you plan your future to resources like FinvantEdge to educate yourself on your next steps.
2. Decide Your Risk Tolerance
Now that you’ve outlined your goals, you should work to understand how much risk you can tolerate as you invest. Remember, the gains of the current stock market are not a predictor of future success, and there’s always a chance your investments won’t pan out the way you hope.
Your risk tolerance varies based on several factors: your age, current income and wealth, and your job prospects and upward mobility.
Your mindset also plays a role. How much risk can you psychologically tolerate in pursuing a potentially lucrative windfall? A good rule of thumb is that if it keeps you from sleeping or makes you anxious about your financial insecurity, the psychological risk is too high.
3. Diversification Is Key
For better risk tolerance (and better chances of success), it’s important to own investments from different companies, sectors, and countries. This means you’ll be able to withstand smaller fluctuations in one area because your overall portfolio will let you weather the event.
4. Keep It Slow and Steady
Despite what popular media would have you believe, it’s not timing that’s the key to success in the stock market—it’s time. Your investments will gradually appreciate as the years pass, which is why it’s so important to dollar-cost average at regular intervals.
5. Don’t Make Emotional Decisions
Rumors and speculation can lead you to waver instead of trusting the plans you’ve laid out, ditching a logical approach for an emotional urge. However, Short-term rumors and fluctuations are rarely predictors of long-term performance—and you shouldn’t necessarily sell when a stock performs differently than expected.
Instead, plan ahead by understanding the opportunity you see in the investment, and outline in advance what would justify selling the stock.
Keep Learning Stock Market Tips as You Go
Investing in the stock market isn’t a one-and-done action, and you’ll want to revisit your investment strategies on a regular basis. As you track your progress, you’ll find yourself using these stock market tips and seeking other advanced resources as well. Don’t forget to check out our finance and business tips and strategies to keep learning on the go!