If you are planning on long-term financial gains, your savings account is the last resort. With the meager rates of interest on offer, you are unlikely to become an armchair millionaire with your return on investment that is proportional to risk. If you’re considering entering the stock market, consider this your survival guide. Here are some basic tips to help you win.
Step 1. Divide Your Portfolio
In investment, as in life, spread your risk. Pour your funds into an array of financial instruments – including bonds, mutual funds and securities – across markets. A rule of thumb for investment is not to let any one fund exceed 10% of your total portfolio. Don’t limit yourself by industry. Distribute your risk across hedge funds, commodity funds and real estate funds, and consider various target geographies. By layering your portfolio with various markets, instruments and industries, you can shield yourself against declines in specific sectors.
Step 2. Sieve Your Sources
The key to building a burgeoning portfolio is backing your choices with well-researched data. Delve into myriad sources and create online comparisons of instruments to see what suits you best. The internet hosts several comparison platforms that can help you with this. Also, know that a company’s past performance is not necessarily an indicator of its future performance. However, a company with a sterling track record has better chances of performing consistently in the future. All these factors considered, you should also be emotionally vested in an organization and its products before investing, so make sure you’re on board with their ethos and offerings.
Step 3. Dig for Gold
Your real work begins once you’ve crafted your portfolio, because now, you must watch it like a hawk. Benchmark your investments monthly, against the market index. Remember, the stock market game wins you the best returns in the long-term, so don’t be lured to sell your kitty by temporary spikes in the market. By retaining your instruments for the future, you can maximize their growth in the long run. Conversely, don’t wait to swap out your underperforming stock market units. While it may seem worth the wait to see a potential resurgence, you may end up witnessing a further decline.
Step 4. Plough Back Your Earnings
Dividends are best reinvested in your portfolio. After all, the best-growing portfolios are not those that appreciate organically, but those that scale through ploughed back dividends. Even a small yield can amount to colossal growth in the long run.
Step 5. Ride the Highs and the Lows
Sell on a high and buy on a low. Make sure to cash out your poorly performing stocks when the market surges and buy new high-potential instruments when the market troughs. Refrain from trading too frequently. You’ll lose significant money in cuts in the long run. Also, always think long-term. Temporary declines in the market are not a cause for concern – you can more than make up for it over the years.
Treat the stock market as a savings account on steroids. If you invest systematically, you can expect to reap rewards.
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