Are you new to the world of stock market investing? It’s not unusual to feel overwhelmed, intimidated, and confused by all the options. Should you invest in stocks, bonds, or mutual funds? How do you keep from losing all your money?
Most people turn to investment strategies that help them take advantage of long-term market growth. You see, success with investing isn’t about buying and selling stocks in the hopes of making huge profits. It’s about diligently putting money into your investment accounts regularly, and growing your wealth slowly over time. The earlier in life you start investing, the better. These steps can help you find the success you need from your investments.
- Use Dollar-Cost Averaging
Dollar-cost averaging is an investment strategy that encourages putting the same amount of money into your investments on a regular basis. For example, putting the same amount from each paycheck into your 401(k) is using dollar-cost averaging to maximize your investment success.
Active stock trading, which involves trying to time the market so that you buy your stocks at their lowest prices and sell them at their highest ones, is difficult even if you’re a professional stock broker. With dollar-cost averaging, you’re buying more shares when prices are low, and fewer shares when prices are high, and the number of shares you’re buying evens out over time, so your average purchase price is never too high. You’ll end up buying more shares over time, and having a larger portfolio, than if you try to time the market and dump all your money in at once.
- Invest in Index Funds
You want to diversify your investment portfolio and keep fees low. Index funds, mutual funds, and exchange-traded funds are great tools for diversification, because they pool many stocks to balance out wins and losses. Passively managed funds tend to outperform actively managed funds over time, so choose an index fund that tracks the S&P. The average rate of return on the S&P 500 Index Fund has been 10.7 percent per year for the last 30 years.
- Limit Your Active Stock Trading
Investing in individual stocks can be a lot of fun, and it can net you great returns. But it’s also a risky proposition. Putting all your money into one or a few stocks means you’re opening yourself up to the risk of losing money to a regulatory change, market downturn, corporate scandal, or change in technology. Limit your active stock trading to 10 percent of your holdings.
- Buy and Hold
Here’s one of those high net worth investing strategies that can help anyone: buy and hold. Basically, it means you buy an investment and then you hold onto it for a long time. The ideal version of this might be buying stocks in a young company and holding onto them while the company grows into a large cap behemoth. Maybe you buy a piece of real estate and 40 years later, it’s appreciated exponentially in value. Or maybe you invest in mutual funds or index funds and hang onto those investments, reinvesting your dividends and allowing your wealth to grow over decades.
- Invest Money You Won’t Need for a While
As discussed above, ideally, you shouldn’t be selling your investments. You should be buying them and holding onto them. In service of that ideal, don’t invest money that you plan to use within the next five years. That’s not to say that you can’t use a brokerage account to save money for future financial plans – it can be a good way to grow your money into a house down payment or a college fund. But there’s no point in investing money if you’re not going to give it time to grow – five years is the minimum amount of time you want to give to an investment. And if you need the money sooner than five years from now, you don’t want to risk losing it on the stock market, anyway. You want to give your investment time to recover from any early losses.
Are you reluctant to dip your toes into investing? That’s understandable – putting together a successful investment portfolio can seem impossible if you don’t know how to go about it. Start investing as young as you can and use the same investment strategies that work for others. With time and regular contributions to your brokerage account, you’ll soon be well on your way to realizing your financial goals, whatever they may be.