When I first started buying stocks, I must admit I found the process daunting. Part of that was due to my fear of losing money. But also, I felt a bit overwhelmed, even though I had read a lot about how to analyze stocks and had developed a strategy to pick the right stocks.
If you’re new to investing, you may have your own fears, and that’s natural. But here are some important things to know as you go through the process of building a portfolio and growing your personal wealth.
1. Market fluctuations are normal
If you started investing earlier this year, you may have experienced quite a wild ride. Stocks have been extremely volatile due to a number of factors, so much so that even seasoned investors have had their own prolonged moments of stress.
But one thing you should know about the stock market is that volatility is normal. And while the market fixes — periods when stock values drop 10% or more — can be stressful, they’re also quite common.
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As such, don’t panic when stock values stagnate. Often what she is seeing is a temporary hit to her wallet.
In fact, it is very important not to lose your temper and sell stocks in a panic when investment values fall. Doing so will create a scenario where you have permanently insured losses.
2. Diversification is extremely important
It’s a bad idea to put most of your money in just one or two stocks, or even one or two sectors of the market. If those specific stocks or sectors take a hit, you could lose a lot of cash if your rally drags on or if, for whatever reason, a full recovery never occurs.
That’s why holding a diverse mix of investments is a much safer bet. And you can do it a couple of different ways.
First, you can upload individual stocks in a variety of market sectors. While there is no specific number to aim for, you may want to buy shares of at least 12 different companies as a starting point.
Another way to diversify is to buy shares of a S&P 500 ETFs, or Investment fund. The beauty of ETFs is that they make it possible to own a bunch of different stocks with a single investment. And ETFs also don’t require the same intense research that you might do on individual stock purchases.
3. Patience is key
The stock market has a strong history of rewarding people who invest in quality businesses and hold onto their stock for many years. If you want to make money in the stock market, you should try to take a similar approach. That means buying companies you can see yourself hanging on to for decades.
By the way, S&P 500 ETFs are investments you can plan to hold for many years. What will happen is that as the market goes up, the value of your portfolio will follow suit. When the overall market stalls, you will see some losses, but in the long run, you should come out ahead.
Being a new investor can be challenging. These tips can help you navigate the process and put you on the path to long-term success.
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