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The S&P 500 index was first developed in 1926, and since that time the market has offered annual returns of just under 10%.
Even with inflation cutting those profits, investments can be lucrative with the right strategy—unless you’re not sure how to start investing.
If you’re a stock market beginner, you may not know where to begin. Fortunately, we’ve put together these four tips to help you feel confident about jumping in.
1. Set Down Your Goals
It’s investing 101: you’re in it to make more money. But when you’re playing the stock market, it’s just as important to know when and why you need that money as it is how to make it.
For example, if you’re looking for quick cash to help you out in the next few months or even years, the stock market might not be the right opportunity for you. Instead, it might be better to find an instant cash loan locally.
On the other hand, if you’re saving for your long-term future—retirement, a home, college tuition for yourself or your kids—the stock market is a good choice. Figure out when you need your money back using simple math or online tools like a retirement calculator. Knowing this can help you with the next tips.
2. Know How Much Risk You Can Tolerate
Your risk tolerance depends on many factors. The biggest of these is how much time you’ll have before you need to take out your money. However, it also depends on your wealth, income, education, and even your psychological ability to tolerate potential loss.
Online tools and questionnaires can help you understand your tolerance level.
3. Diversify Your Investment Portfolio
This is the best strategy for managing risk.
Think of it this way: if you own stocks in different companies and different industries, each stock will perform differently over time. A small number of your stocks may plummet, but most of them will grow in different increments from small changes to huge leaps. This allows you to recover from the partial loss to see overall profits.
4. Keep Your Emotions Out of It
Despite what the movies might have you believe, the best investment strategies are based on logic—not emotion.
If you constantly track your stocks, listen to industry rumors and speculation, and worry over price fluctuations, you may end up wavering from your initial plan. Instead, know your limits: when you buy a stock, decide how much loss it would take for you to sell. Until that point, hold fast when your stocks perform differently than expected.
Keep Researching Stock Market Beginner Tips
The market is constantly fluctuating, which can be overwhelming for a stock market beginner. However, don’t be afraid to get started in small increments, as the best way to learn is often to dive in.
You’ll need to keep learning and researching as you go, especially because stock purchases aren’t one-and-done decisions. But with a little work, you’ll reap great financial benefits. Check out our other posts to see more finance tips for stock market beginners!