At some point or another, you’ve probably heard that if you truly want to see your money grow, you should consider investing in the stock market. As explained by Bankrate, “Saving is the act of putting away money for a future expense or need,” Investing, however, is “putting away money for the future, except you’re looking to achieve a higher return in exchange for taking on more risk.”
As spelled out by Nerd Wallet, the stock market is a place where investors can buy and sell shares of ownership in a publicly-traded company. Investors benefit when share value increases as their share in the company also increases, thus growing the investment. Investors may also benefit from quarterly dividend payments, which according to Investopedia, “dividends are payments made by publicly-listed companies as a reward to investors for putting their money into the venture.” Of course, as with any form of investing, there are risks involved. However, there is also room for plenty of rewards.
If you’ve been thinking about investing in the stock market and you’re not sure where to begin, consider these tips shared by finance experts.
Go for what you know
“My advice to a new investor would be to focus on companies she knows,” Tim Bain, President and Chief Investment Officer at Spark Asset Management told MadameNoire. “While products and services you use don’t always translate into good investments, they provide a good starting point for ideas. Some of my best investments have come from simply paying attention to what my family likes and uses. Once you have ideas, dig a little deeper. Is the company a leader in its industry? Are their sales and profits increasing?”
Mix things up
“Build a portfolio of five to ten companies to get diversification and try to own companies in different industries,” Bain also shared.
“The best thing for most investors is to invest in a low-fee, broadly-diversified, stock market index fund. Buying an individual stock is subject to tremendous risk. A mutual fund or ETF diversifies and the volatility of that investment will be much less than that of the average single stock,” adds Dr. Robert Johnson, CEO, and Chair at Economic Index Associates. “People in their 20s, 30s or even 40s should begin investing in a low-fee, diversified equity index fund and continue to invest consistently whether the market is up, down, or sideways.”
Have various timelines
“Successful investing, which begins with just being invested, is critically important for achieving personal financial goals, particularly during this prolonged era of low-interest rates,” shared Mark Hamrick, Senior Economic Analyst at Bankrate. “One should seek to prioritize investing over a variety of timelines, meaning the long-term or typically for retirement, and the intermediate-term which would include saving for major goals such as a college education or to purchase a home. One can invest for the short-term, but typically funds for this time horizon would be in less volatile, more liquid realms such as in a high yield savings account which is different from investing.”
Take finance news with a grain of salt
“Financial news and headlines have no impact on your long-term investment success. You are better off ignoring CNBC and other financial news media outlets,” said Dejan Ilijevski, Investment Advisor at Sabela Capital Markets. “They promote speculation and rely on sensationalism to increase your anxiety about being left out of the game.”