Investing in the stock market is the only way for most people to build real wealth. The right combination of investments helps to achieve almost any financial goal, and reduce risks through planning, strategies and the correct distribution of assets. In this article we will try to convince you that investment and the stock market for beginners are not as scary and incomprehensible as many people think..
The market risks of investing are not as big as everyone thinks
The stock market for beginners, and not only, really contains a risk. But losing money is not the most serious threat. The greater danger is that people who do not have enough savings for retirement run the risk of surviving their savings (if they exist at all) and face a difficult financial life. Safer investments may lose purchasing power due to inflation.
“Investing money seems risky, but giving it up is an even greater risk, especially if you study the issue of the threat of inflation. If you don’t increase money, it’s difficult to live normally in the future, ”says certified financial manager Petr Lazarov, co-director of investments at Plancorp.
Investments can strengthen capital and maintain purchasing power. To reduce the risks of inflation, do not strive for high returns. Just use the right combination and allocation of stable and risky assets. This approach will ensure portfolio growth without the risk of its full depreciation..
Equity and bond markets are quite extensive
Stocks and bonds are the main stock market. Buying stocks is more risky than buying bonds. However, some stocks are less risky than others..
There are large and stable corporations that have been on the market for several decades. Among these: Johnson & Johnson, Microsoft, Ford Motors, General Electric, Procter & Gamble and others. For beginners, it will be right to pay attention to such companies in order to feel in a new business and practice. However, a large and established brand does not always have the same profitability potential as a new player. And here it is important to understand that the greater the potential return, the higher the risk. The task of a reasonable investor is not to lose the choice and correctly assess all the prospects for investing in a company. We wrote in detail about how to do this. here.
Bonds work in a similar way. Risky companies offer high returns, and safe borrowers (usually state-owned companies) offer lower returns. If you have a poor understanding of what stocks, bonds and securities are, read this article.
In the portfolio, use assets with different levels of return. Regardless of the situation, there is a combination of investments that will satisfy your goals and risk tolerance. Combine high-risk, high-yield stocks with more stable, safer stocks or bonds. Do not forget about companies that pay dividends.
The stock market for beginners is not distinguished by this rule. As stated above, you must deal with asset allocation (diversification). It’s about how you divide money between different investments. How you mix investments determines the overall level of risk in the portfolio.
With the right combination, you can control the volatility (volatility) of the portfolio to a certain extent. You also have control over the level of returns. High-risk portfolios contain a larger percentage of stocks than bonds. Conservative portfolios include 50% of shares and 50% of bonds or give a larger percentage of bonds.
All stocks and bonds have a different ratio of risk and security. To understand what combination of stocks and bonds and what proportion you should keep in your portfolio, determine your level of risk appetite.
Strategy vs Emotion
Buying and selling an investment is one of the most important responsibilities of any investor. It should have its own system that tells you when to buy and sell, and which does not allow you to panic and save at the wrong time. In this regard, the stock market for beginners is no exception.
“Emotions will spoil you as an investor, whether you are a beginner, an amateur or a professional. Emotions will make you buy and sell in the stock market at the wrong time, ”says Matthew Tuttle. A well-planned strategy will simply remove variables such as fear or enthusiasm from your equation for investment success.
Vladimir Maslennikov, Vice President of QBF Investment Group, has already told us about the popular strategies in the Russian market investing. Heed his advice.
Develop a calm attitude and a reasonable approach to investing. “This means you understand what you intend to buy and when. This means you are aware that you intend to sell and when, ”Tuttle notes..
It’s not necessary to keep track of time, but to manage it
Trying to do something exactly on time, people sometimes find themselves in a stupid position. And it does not depend on whether you want to find the best time to enter the market or to leave it. The secret is that no one ever knows what will happen and when.
“We observed that people were reluctant to invest in stocks and engage in their redistribution. They are concerned that risk assessments are high, ”said certified financial planner Jeff Nauta, director of Henrickson Nauta Wealth Advisors. The truth is that the stock markets have been trading at the highest level for many years, and you just miss a big profit while sitting anxiously apart.
Do not wait for the right time. Instead, explore possible strategies and get down to business. Set a goal to invest a certain percentage of your salary on a regular basis.
Do not speculate
There are investors, but there are traders. The investor invests long-term money (from 3-5 years) and stretches the strategy for a long time, receiving dividends and evenly increasing capital. The trader is engaged in speculation. He tries to profit from stock price fluctuations throughout the day, making many transactions, buying and selling shares several times a day. Trading is a huge risk. And if you do not want to spend all day watching quotes, then this is not your method.
We do not recommend considering the stock market as a game and an opportunity to earn quickly. Any kind of speculation is risky. They have nothing to do with the long-term investments that we are talking about..
“High-frequency short-distance trading (that is, the work of professional traders) has minimal impact on ordinary investors. If an investor does not buy blocks of securities in bulk, he does not remain in the red, “says Jeff Nauta.
Scandals and scams undermine public confidence in the stock market, but the exclusion from this issue and ignoring economic growth leaves ordinary people far behind in financial well-being.
“You can’t think of another way to turn $ 100,000 into $ 1,000,000 unless you have a really good printing press,” Tuttle notes with a smile..
1. Invest and monitor the inflation rate when choosing an asset for investing money.
2. Distribute money across different assets.
3. Diversify the portfolio, depending on the level of risk.
4. Turn off emotions and stick to strategy.
5. Do not wait for the right time to invest. Accumulate a certain amount for investment and act. The main thing is that this is not the last money.
6. Invest long term.
How can you lose money in the stock market When an investor does not know what he is doing, the stock market becomes a dangerous place for him. Here are a few…
By investing in stocks you risk losing money and no investor will be satisfied, despite the fact that his profit decreases after investing in…
Any novice investor is faced with the moment of choosing a broker. Many consider this an initial task, however, in my personal opinion, the discovery…