One of the proven ways to make money in today’s economy is by investing in the stock market. However, this approach requires lots of research, patience and a sound understanding of the market.
Although there is no proven formula for successfully investing in the stock market, there are some practices that, if followed, may increase your chance return on your investment. Let’s take a look at some of these practices.
Start Small and Invest for the Long-term
Although some individuals make millions through stock market investments, they rarely do so through day trading. These individuals are in it for the long haul and look to invest in companies with a solid business plan that promise profitability and strong leadership. These investors hold on to such assets for decades, and more often than not, they are rewarded for their patience and dedication.
Image via Flickr by Debbie
Nonetheless, there are stock market traders who make tons of money by executing just a few quick trades. However, this route is fraught with risks. Referred to by industry players as “short trading” or “day trading,” such rapid trades are often done in high-risk, volatile markets. Investors who trade in such markets usually incur heavy losses.
The safest strategy, especially for first-time stock market investors, is to purchase stocks with a high growth rate and hold on to them for at least five years. Aside from purchasing equities with the aim of making capital gains, you also receive dividends and interest on your investment.
Avoid Herd Mentality
When purchasing stock, you may be influenced by the actions of your friends, family members, and colleagues. If everyone is buying into a particular stock, you may be tempted to do the same. However, following the herd mentality in stock investment is one strategy that consistently backfires.
A lot of individuals lose their investment capital this way. Once a particular stock becomes popular, its price becomes inflated. Before buying into such stocks, you should undertake proper research to determine the long-term viability of such companies. You should also check if the price is commensurate with the actual value of the stock or if the company is just riding a bullish trend.
Follow a Disciplined Approach
Many investors lose their hard-earned money in the stock market due to the inability to control their emotions, like greed and fear. The stock market is filled with stories of investors who made fabulous returns in a short period of time. When a stock goes on a bull run, it is difficult to resist the temptation of making a quick profit. This is when greed comes into play.
You may be tempted to buy such shares without a thorough understanding of the risks involved, but once the market trend reverses, you may end up losing all your money. Investors who generate outstanding returns are those who have long-term investment goals and follow a disciplined approach.
Learning how to make money from trading stocks takes time but is well worth the effort. The best way to ensure your success is by working with an investment coach who will help you come up with a sound investment strategy.
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