If you are thinking about growing your wealth over the long-term, investing in stocks may be the way to do it. Historically, stocks offer a yearly return of about 11 percent on average. This is typically higher than the rate of inflation. What should you know about investing before you start putting your money at risk?
Diversify Whenever Possible
Even on days when the stock market may finish higher overall, there are still going to be individual stocks that lose value. To increase the odds that you make money on the market, you will want to diversify your holdings. Buying into a mutual fund or index fund helps you gain exposure to multiple sectors of the market with one purchase. Buying an ETF is best for those who want diversification and liquidity.
Find a Mentor
While you should always make investment decisions based on your own goals and timeline, it never hurts to have a mentor. This person could be an influential blogger, a local financial adviser or an investor who you have admired from afar. Having a mentor or an advisory firm like Trajan Wealth or someone similar gives you an opportunity to ask questions about the market, talk through trade ideas and help you learn more about controlling your emotions during times of extreme market volatility.
Don’t Invest More Than You Can Afford to Lose
A good rule to follow is to never invest money that you cannot afford to lose. This means that any money that you put in the market is what is left over after you pay the rent, make your student loan payment and take care of other bills. Following this rule ensures that you still have a place to live or a decent credit score in the event that the market tanks.
Always Make Decisions for the Long-Term
When it comes to investing, you measure returns in terms of years or decades as opposed to days or months. Therefore, you should only buy a stock if you think that it has growth potential over the next several years. While there is nothing wrong with day trading, you will build most of your wealth by selecting quality stocks that provide value over a generation or more.
Investing in stocks is a skill that everyone should learn at some point. Even if you don’t want to actively manage your portfolio, buying mutual funds or index funds allows you to benefit from upward movements in the market. Ideally, you will start as soon as possible as that allows for maximum compounding of your investment capital.