The following article is a guest post submitted by Shannon Leonard.
Thanks in large part to modern technology; it’s easier than ever before for people to make personal, hands-on investment decisions. Where once we may have trusted experienced brokers or private account managers to handle our finances, we now have more options that allow us to make day-to-day investing decisions on our own. The trouble is, this isn’t exactly a simple process!
Really, it takes years to become any kind of expert in the stock market, and even some of the most experienced traders will acknowledge that there’s a great deal of luck and unpredictability at hand. That said, there are still a number of basic strategies that a first-time private investor can learn fairly quickly to become a knowledgeable, potentially effective trader.
If this is something you’re interested in exploring, or something that’s already arisen as a challenge in your life, here are some first time investor tips to consider.
Start With What You Know
This article, on tips for investors just starting out, notes that beginners would do well to stay with what’s familiar in the early going. While I think it’s important to remain cautious, I do agree with that sentiment. The way the article phrases it is, if you love a particular drink at Starbucks, you should consider investing in Starbucks. I wouldn’t go that far, because investing based on personal taste or preference is an easy way to become a little too emotionally attached to your transactions, and your viewpoint can be skewed. However, the underlying idea of conducting some of your early investments in industries you’re familiar with holds merit. You’ll simply have a broader knowledge foundation, and you’ll be more likely to stay informed and up-to-date. In many cases, this is half the battle.
Set Your Boundaries
This is one of the more difficult and more crucial tips for first-time investors, so be sure to pay attention. This post on traits of successful investors puts it pretty clearly: “human psychology suggests that people hang on to losses longer than they should.” That’s as true in the stock market as anywhere else, and it’s very important to understand before you put money behind a company or resource. At some point, an investment is going to go south on you, and it’s always best to have a lower limit in place for just such an event. That way you don’t hang on to a plummeting value while gritting your teeth and hoping for a turnaround. Certainly, stock values ebb and flow, and a small decline is usually no reason to panic and abandon ship. But if a larger decline occurs and signs point to ongoing difficulty, it can be best to cut your losses. And that’s easier to do with a predetermined lower limit in place.
Diversify Your Holdings
While it’s still wise to stick with familiar industries in the early going, make sure you don’t put all of the money you’re investing behind a single company or product. This expert’s advice on beginner trading explains that “diversification is the key,” particularly for those who are only putting in a little bit of money to start. That way, even if one of your first attempts at a fruitful investment crashes and burns, you haven’t lost the entirety of your investment capital, and you can proceed with other strategies.
Beyond these general tips, there are innumerable strategies to employ in seeking a profitable stock market experience. But if you are just starting out, you’d be amazed how far these basic pieces of advice can go in helping you to get on your feet.
About Shannon Leonard
Shannon Leonard is a freelance writer with the hopes of one day becoming a magazine editor. In her downtime, she enjoys researching every aspect of finance and investing while binge-watching her favuorite shows on Netflix.