When it comes to stock investing everyone has a method to their madness. Some people day trade and follow trends others invest strictly for the dividend. Whatever you choose to do all that matters is that it works for you. While there is no sure-fire way to guarantee profits, there are some key principles that are universal when it comes to investing. Here are some do’s & don’ts when investing in stocks:
DON’T BUY THE HYPE
This is the golden rule of stock investing. Buying a stock just because of hearsay and market anticipation is a huge no-no. If one thing is true it’s everybody thinks they have the inside scoop. Lets use the creators of Snapchat SNAP Inc. for example, their IPO was one of the most anticipated since Facebook’s. People assumed because it was a popular app it would be a good stock. Unfortunately, for those who held on to the stock past the opening month watched their stock lose 50% of its value in a matter of months. SNAP Inc. is now trading at $14.88 after having rose to $27 in the first week of the opening bell.
DO YOUR DUE DILIGENCE
Stock investing is a long and tedious process. Experts watch stock for weeks, months, or even YEARS before buying or recommending them. For the average investor we don’t have this kind of time, nonetheless research is still pertinent. When interested in a stock I recommend using a mock portfolio to see how it moves, researching who owns the stock, prior market history, and news regarding the industry and company. This could seem burdensome, but you’d rather make a calculated risk than an educated guess.
DON’T PUT ALL YOUR EGGS IN ONE BASKET
I can tell you from personal experience dumping all your money in one stock is huge mistake. The reason why is because should it go south all your earnings are going with it. It’s important to have a healthy balanced portfolio so as to be able to avoid major setbacks. The market is going to go up and down that’s a given, but you don’t want to be unable to recover. Investing in mutual funds an ETFs are some great ways to diversify.
DO START WITH DIVIDENDS
This is my personal recommendation. Dividends provide cushion to losses and continue to produce even when market conditions aren’t favorable. Couple that with compound interest and this provides a strong foundation to build your portfolio should you decide to take on more risk.
DON’T JUMP IN AND OUT OF STOCKS
One thing the stock market is good for is taking your biggest fears and making them real. We all have that dream in the back of our heads where we invest in a stock and we become millionaire’s overnight. It’s just that, a dream. When investing it is important to have patience and remain detached because being emotionally involved can lead to mental errors. Jumping in an out of stocks can also cost you in profit. It cost money to buy and sell thus eating into your gains and setting you back. Remain steadfast and stick your guns. Only bail if it makes sense.
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