Those who don’t know anything about investing tend to fall into one of two categories: people who think it’s incredibly easy to get involved, and people who think it’s impossible to understand the first thing about investing.
Though you do have a lot to learn if you want to be successful when investing your money, it isn’t impossible to increase your net worth through the stock market. But it’s also not a get-rich-quick scheme, either. Before you dive into the stock exchange, there are a few things you should do and understand first.
Set a purpose
Okay, so obviously your purpose for wanting to invest in the stock market is to make money. But why do you want to make more? How much are you willing to invest? How long are you willing to wait until your investment pays off? Like I said, you won’t start making money overnight, so it’s in your best interest to think long-term. Are you looking to pay off school loans or your mortgage? Are you trying to save for retirement? Or do you want to ensure you have some money saved up at the end of each year?
Once you set a goal, do some research regarding the length of time and the amount of money you’ll need to invest in order to reach that goal. Be realistic, and you’ll end up being much more successful.
Know the risks
Investing your money in the stock market is definitely a risky venture, especially if you haven’t done the proper research. Even if you have done the research, there’s always going to be the possibility that you could lose everything due to factors beyond your control. You have to be okay with that. In other words, don’t put out more money than you can afford. Investing too much money leads you to make decisions based on emotions rather than logic, and will almost certainly lead to ruin. As long as you are comfortable with the possibility of losing the money you’ve invested, you’ll be able to make sound decisions that will benefit you in the long run.
Understand the basics
Earnings per share, return on equity, fundamental and technical analysis. If that sounds like a foreign language to you, do not put your money into the market just yet. Don’t just hire a broker and hand them your money while asking them to work their magic, either. You should have a full understanding of exactly how your money is being invested. Otherwise, you run the risk of being played by a broker with an ulterior motive. Understand the different types of investment accounts available for your goals, so you can have a good idea of how to make your money work best for you.
The most important piece of advice I can give you when investing your money is to never put all your eggs into one basket. Creating a diverse portfolio ensures that, even if one of your investments fails, you’ll almost certainly never lose all of your money. Diversifying your funds also allows you to set different goals for your investments. An investment in an ETF is much different than a gold IRA investment account in terms of the amount of time and money needed to be successful.
Use your own money
I previously discussed the importance of only investing money which you can afford to lose. Along with this, you should never invest money that you’ve borrowed from a bank or other service. Leveraging, or borrowing money to be invested, will ultimately destroy your profit margin once you take into consideration factors such as interest and brokerage fees. Not only that, but if you invest money that’s been loaned to you and the market crashes, you’ll still owe that money, with interest, to the entity you borrowed it from. If you want to experience true monetary gain through the stock market, use your own money, and only your own money.
Featured photo credit: Grow Your Money / Chris Potter via farm9.staticflickr.com