INVESTING TIPS FOR NEWBIES
The stock market can be quite complicated especially if you are a first-time investor. You could encounter circumstances and offers that may seem rewarding at first glance, but could be traps in the long-run. This is why it's best to be equipped not only with the basics, but also with additional information to avoid losing your hard-earned funds. For those who have just entered the field of investing, here are a few advices to guide you better:
Do not plunge into something without gearing up
Although investing seems simple, avoid biting into every transaction without analyzing your figures first. There are different calculations for every situation so the concept of buying low and selling high will not be applicable at all times. Knowing your metrics before you invest is vital, so go ahead and study the terminologies and concepts you will be needing before anything else. This may include earnings per share, EBITDA, book value, and so on.
It is also a good idea to have a demo account and use virtual money in a stock simulator. This would allow you to have a glimpse of the market and trading system, helping your familiarize yourself.
Think twice about penny stocks
Penny stocks lets you trade at low prices with small capitalization required. Sounds good right? Wrong. While these stocks look attractive, they are bound to raise conflicts, as they pose high risks because of low liquidity. Whatever profit penny stocks may give are parallel to their extreme volatility plus, getting information on these might be difficult and may discourage investors who are still educating themselves. Bottom line is, it would be better if you pick out a stock for its quality rather than for its ability to give you profit in a small amount of time.
Never dump all your money in a single investment
This is a lot like saving. Always allocate cash for emergency instead of wiping out your entire salary. In terms of investment, do not put out all your cash in one investment, as even the most successful companies have a possibility of having a decline. A more advantageous move for you would be to mix a variety of investments in a portfolio. This way, it would be less costly for you in case you make mistakes along the way.
Consider other forms of leverage
Leveraging occurs when you borrow money to buy stocks than you can afford. However, your you losses may outweigh your gains had the the stocks declined, so you might want to check out other ways of borrowing capital too. One example of this are options, which gives a buyer the right to purchase financial assets at a given price during a specific period of time. However, it is best to use options when you already have ample experience in the market as they may involve complex instruments.
Avoid investing on news
While it’s tempting to jump into an investment that’s currently popular as they may give you over the top earnings, you have to analyze what’s in front of you first, because when it comes to the stock market, you are going against companies that do not just dive into something that looks profitable but considers every factor and possibilities before doing so. Instead of using hearsays as basis, it would be more appropriate for first time investors to work with companies they know and have experience dealing with. It would also be wise to start with a small amount of leverage until you learn to take control of your capital.
The stock market may sometimes be harsh when it comes to mistakes, so newbies would be better off taking things slowly and take risks with money they can manage to lose--you can always increase this money as you become more skilled in assessing stocks. It’s also a good start to invest in things you have knowledge of, and aim for high quality stocks that can hold on to for a long time.