New investors should look at the stock market as going to war. If you go to war without arms, your enemies will defeat you. Investors must arm themselves with risk management strategies, technical and fundamental analyses, and market evaluation techniques and be aware of mistakes to avoid in order to be successful in the financial market. Taking advantage of risk management tools like stop losses or trailing stops to protect the returns is a great way to avoid losing money.
Patience is a virtue to possess when investing in stocks. Stock price actions are constantly fluctuating; the share prices are either going up or coming down. Volatility should not scare investors so long as the company was evaluated correctly. The recommendation is to allow three to six months leverage before expecting returns. This is because the stock market, in the same way as any other investment, for instance, real estate, requires time to grow. Remember, you don’t lose money if you don’t sell your stocks. When stock prices go down, exercise patience; most valuable stocks will eventually move back up.
New investors should start investing with a small amount of money and gradually increase the amount as they gain more confidence. Investing is a marathon, not a sprint, and every mistake is a learning opportunity. It is crucial to have a balanced or diversified portfolio by investing in some blue-chip companies which have already proven their worth, like Apple (APPL), or exchange-traded funds like the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD), which are less volatile before ultimately investing in growth stocks.
That notwithstanding, the stock market is not a get-rich-quick scheme. Investors must keep aside their emergency funds. Irrespective of how much growth potential a stock has, it is never a good idea to put in all your funds. The SEC regularly carries out a correction; this is when a stock market index falls by more than 10%. Nobody can predict with any degree of certainty when a correction will take place and how long it would last. So, imagine you have your emergency funds tied up for over two months at a time when you desperately need it. Warren Buffett’s first stock market rule is to never sell at a loss.
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