Some new investors might not know this, but exchanging shares of investment in public companies used to be a very inclusive business.
For example, when the New York Stock Exchange first opened its doors, there were only 1,366 seats available for traders to process orders. With the meteoric rise of communication technologies like the internet, online investing was born. Anyone, anywhere, at any time can simply point and click to process their personal orders. This means that you, as someone interested in online stock trading, should be involved in learning how the stock market works.
Here are some tips that can help you get started with the learning process and start you on your way to becoming a savvy investor with the right tools to succeed:
Don’t Be Afraid To Take Risks
As a young investor, taking on risk is often a good thing.
This might sound counterintuitive, but hear us out. Stocks are more risky than bonds or accounts in the money market; however, potential losses are mitigated by the future rises and falls of the market, along with the fact that your retirement is still a long way down the road. There is plenty of wiggle room to make a mistake (so long as you don’t bet the farm)!
Do Your Homework
The internet is an excellent resource, and the amount of information you can access on any given subject is vast. If you are interested in a company, all sorts of financial data, company metrics, and relevant statistics are available to you with only a few clicks of the mouse or a touch of the hand.
There is no excuse for not taking the time to research a company that you plan to invest in, especially when it involves your own hard-earned money.
For instance, on SprinkleBit our search feature consolidates a wealth of trending information on public companies, and formulates returns graphs so you can visualize value. We feel strongly about informed trading decisions and believe you should, too.
Develop An Investment Strategy
Strategy is an important tool in the belt of any investor. Understanding the goal of the investment beforehand helps one make the best decision given the factors analyzed.
For the purposes of this post, we will highlight a very basic strategy that we think will be helpful to someone just getting started with investing: the “Dollar-cost Averaging” strategy.
Simply put, Dollar-Cost Averaging helps average the unknown fluctuations of the market for a green investor who cannot use their crystal ball to see into the future. Set aside a certain sum of money that you can invest in a company that you believe has the prospect for long-term growth. Choosing an arbitrary interval, whether it be a week, every other week, or a month, one systematically invests the sum in the chosen stock.
Setting aside $100 every month to invest in McDonalds, for example, would eliminate the fluctuations of the market because you are essentially buying the stock at an average price over time. This way, you avoid jumping in and out of the market at the wrong time.
Build A Portfolio
Diversification is a key principal of investment. Undiversifiable risk is unavoidable; every investment has the potential to fail.
When you invest solely in one company or industry, though, you are failing to capitalize on diversifiable risk – risk that can be avoided by fostering a diverse portfolio.
Hedging your bets in various different business sectors can help maintain earnings if one market region goes belly-up. So be smart and expose yourself as little as possible by spreading out your risk among different types of stocks.
Learn About Financial Analysis
Once you have undertaken some of these tips and established a portfolio based on intuition, the next step is to start learning the underlying principles of sound investment.
Finance lingo can tend to be obscure and difficult to grasp; IRR, ROA, ROE, and the P/E Ratio are acronyms that convey important meaning towards understanding a company’s internal workings. (For reference, IRR = internal rate of return, ROA = return on assets, ROE = return on equity, and P/E ratio = price/earnings ratio.) If you’re interested in learning more about these basic investment principles, we cover them weekly on our Facebook page and we’re always available to answer your questions – just ask!
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