Stocks may be one of the smartest places where you can invest your money, if you know what you’re doing.
If you haven’t started investing yet, let’s talk about some mistakes you can avoid and which can save you some money.
Here is my opinion about the 7 things you should know before investing in stocks:
1 – You Can Lose All Your Capital
This is definitely the number 1 thing you should have in your mind prior to investing in stocks (or any other type of investments).
When there’s an expected return, there’s always risk associated with it.
2 – Your Broker Might Not Be Regulated
Anyone needs a broker in order to invest in some stocks. There is some research we can do though before trusting our funds with one.
Would you trust your money to a stranger without any guarantees of returning your money back? That’s an outcome that is more likely to occur in unregulated brokers or companies.
Make sure that the financial results, banks associated with the broker, and regulations are all trustworthy and make sense.
I use DeGiro as a broker. Even though I use them, if you decide to register with them, make sure to always do your own due diligence first.
3 – Only Invest Money You Can Afford Losing
This may seem like an obvious one, but some people invest more than they should, sometimes losing it all and not having money to the essential things.
Try instead to save a monthly percentage of your salary and according to your needs, invest it in the stock market. Choose a percentage that will allow you to still have a good quality of life.
Don’t forget to enjoy your life throughout the path to financial freedom.
4 – Timing The Market Is Almost Impossible
Timing the market is easy, if done in a short period of time. Doing it for long periods of time is a whole other story.
Don’t fall for people who say they have exorbitant returns all the time. If they really do have amazing results, ask for the audited results. Do they have one?
There are way too many news and variables to take into account. Technical analysis may work sometimes, but in the long-term, unless your only job is to be paying attention to the stock market, good luck with your multi-tasking – which by the way, is a myth.
You may have noticed that a lot of courses are being sold to teach how to beat the market, but as Warren Buffet says, you’ll be better off investing in an ETF and hold your funds for the long term.
5 – Investing For The Long-Term Is Usually Safer and Still Profitable
Because of the assumption that the market is growing yearly (it might change we never know), it is always better to invest for the long-term IF you don’t want to feel overwhelmed with your investments.
You can enjoy your life with more calm, and allocate your time to other things you like doing, rather than being worried that the stock market might behave in a strange way on a certain day, hour, minute, or second.
6 – Emotions Play a Big Role
Emotions play a big role in any investor, especially in the beginning, when after being up a good percentage on a certain day, in another you may be down. At this point, you’ll only want to recover to where you were before, but it may not happen so…
Then you get too emotional to those stocks and add more funds, and keep on losing, etc…It’s a negative snowball (I’ve been there).
7 – Past Performance Is Not Guarantee of Future Results
The future is unpredictable. Even though the stock market is growing each year, this might not be the case in the next years.
At the time of the stock market’s inception and the following decades, there were times where the stock was not growing nor decreasing. Times where it crashed 90%, 50%… What would you do if you were an investor back then?
The chart above shows how volatile the stock market can be.
Be wise, study, review the 7 things you should know before investing in stocks and have nice investments!