If you are reading this article, then I’m sure you are eager to start investing in the market. I always tell people don’t wait to start investing. I highly encourage you to start investing. Before you do, I’ve outlined 7 important life lessons that I learned the hard way when investing in the stock market. Avoid making these simple mistakes. Without further ado let’s go ahead and dive into 7 things I wish I knew before I started investing in the stock market. These tips and tricks will save you thousands of dollars.
Invest in Companies and Stocks You Know and Understand
One of the best pieces of advice I ever received from my finance professor was to buy the companies you know and understand. I can recall back when I was in university, I didn’t have much money, but I had a mac computer and an ipod shuffle that I loved. I invested in Apple stock because I saw the value of their products. This in return ended up being a great investment for me.
On the flip side, I invested in a robotics company that I knew nothing because it looked like a good deal / investment. The future is robots right? Well that company ended up going bankrupt. I didn’t really understand robots when I invested in them and that cost a pretty penny.
Don’t get Spooked and Pull Your Money Out Too Early
Many times, especially first time investors end up getting spooked and pull their money out too early. This is one of the most common mistakes I see, especially with young or beginner investors.
If your stock goes down after you buy it, it’s okay the market fluctuates, don’t get spooked and pull your money out too soon. Remember investing in the stock market is a long term play, not a short term one.
On the flip side, investors who are beginners often make a profit and then pull their money out immediately after it turns positive. This is also a common mistake.
You wouldn’t believe how many times someone told me something along the lines of, oh I bought Tesla stock and then as soon as it went up a little I pulled all of my money out, and it literally doubled in price since then. This is a mistake, if you are in need of the cash, I always tell people to pull out the cash at different times. For example, you only pull out 50% of your cash now and then another 50% at a later date.
Understand What it Means to Invest Long Term
Many people think when you invest in a company you are probably hoping for instant returns, the truth is you should look at your investment in the long term. Even Warren Buffet has been quoted saying, “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.”
In short, don’t be impatient when it comes to your money. You are in this for the long haul, after you’ve invested your money, you are now in the waiting period.
Buy Over a Period of Time, Not all at Once
If you are trying to chase the bottom of the market, stop, it will never happen. The best advice is take that money and invest it over time. This will allow you to get a weighted average.
Here is a simple example: Let’s say you have $10,000 to invest in the market. Take that 10k and divide it up into 5 different “buy” days of $2,000. (Personally, I like to buy on down days)
Diversification is key
I’m sure you’ve heard the phrase don’t put your eggs all in one basket. This concept applies to the stock market as well. It is highly recommended that you diversify your portfolio. However, don’t over diversify your portfolio for the sake of diversification. Know what you are investing in and then diversify your portfolio on companies that you understand. Diversification can come in the form of different stocks, mutual funds, ETFS, commodities, bonds.
Be Prepared to Take a Loss
I always tell people, if you can’t afford to lose the money 100% then you shouldn’t be investing in the stock market at all. The truth is, nothing is guaranteed and if you need that money or think you’ll need that money in the next year then I don’t recommend that you invest in the market.
I have a personal rule that I follow, if the stock goes down 20% from the original price I purchased at, I will pull it out and invest in something else. This strategy helps minimize the losses.
While investments like the S&P 500 year over year average an 8% return on investment, there is still a risk associated with it.
Understand the Different Fees and How much it will Cost You
One thing many people don’t know or even understand is all the fees that are associated with the stock market. The good news is that most platforms are now free to buy and sell stocks freely. This wasn’t the cast 5 years ago, you used to have to pay a fee every time you bought and sold a stock. However, ETFS and Mutual funds still carry a fee associated with them. It’s important to know the fees associated with your investments.
My favorite trading platforms:
|$0 per trade||$100 with $25k deposit||$0 minimum|
|$0 per trade||$50 for signing up||$100 minimum|
|$0 per trade||Free share of stock||$0 minimum|
Recap on what I wish I knew before I started investing in the market
In short, these are the things I wish I knew before I started investing in the stock market. invest in companies you know and understand, don’t get spooked and pull your money out too early, understand the meaning of investing long term and over a period of time, don’t forgot to diversify. Be prepared to take a loss and understand the different fees and what it costs you
Those are my 7 biggest mistakes I made while investing in the stock market. I would love to hear in the comments below what you wish you knew before you started investing in the market?