When a beginner faces the task of investing in the stock market, he or she can make many mistakes. The most common mistake is to start an investment following the recommendation of a friend.
Another bad habit is to invest because others are doing it. This normally happens when an asset has been going up for a long time, we see that everyone is making money, and we do not want to be less. Does this remind you of something? We hope you have not caught your fingers with Bitcoin! Actually, if you are going to invest in the long term, any time should be a good point to start.
We leave you with these tips on investing in the stock market for beginners.
1) Think about your goals or needs
Before investing in the stock market, the beginner must know what his financial needs and objectives are. The beginner should be able to answer questions like:
– What is my financial objective? For example, do I want to set up a security fund to expand my savings? Or on the contrary, my savings are already enough and I am in a position to accumulate capital taking some risk?
– What is my investment horizon? 5 years or 10 years. A very common blunder is to invest savings that we may need in the short term. If you may need the money saved before 2-3 years, it is more reliable not to invest it!
Knowing our vital objectives will help us both to define financial objectives and to calculate the investment horizon. For example, if I am going to move within two years, I will probably need the money, or if I want to save for my children’s college and they are small, I will likely be able to maintain the investment for more years.
Knowing your investor profile should be a prior step to the beginner’s decision to invest in the stock market.
2) The distribution of assets
If we buy the stock that we mentioned at the beginning, we are assuming that our profile is very risky since we are investing 100% in variable income.
That is why it is advisable that, before investing in the stock market, the beginner knows his profile. Once I know my investor profile, it’s time to decide which asset allocation is right for my portfolio. For example, the longer my investment horizon, the more risks I can take and the more weight of variable income I can have in my portfolio. But of course, this is also conditioned by my risk tolerance. The wallet you build should allow you to sleep soundly.
3) Enough information before active management
Before investing in a stock or a few stocks, the beginner should ask himself if he has enough information and training to be active in investing. Do you really have enough information to invest in that stock? Do you have the temperament to let investment theory in a few companies do the trick?
Experience shows that active management is reserved for experts. In addition, having advantages of active investment is increasingly difficult.
But today, even investing in a beginner’s exchange is possible and relatively easy. How? Indexing with listed index investment funds or ETFs. Using index funds, you will be tracking the price of a specific index.
4) Diversify your investment
We suggest that, before investing in the stock market, make sure that you are going to have the necessary time and discipline to do so. It is also convenient to diversify your investment to the maximum to reduce risk, it is not the same to be invested in a single action than in a group of actions, it is not the same to invest in a single country as in the whole world, and it is not the same to be invested in one sector than in many. If something goes wrong in one site or sector, it may be that in another, being diversified will help reduce your risk.