The Do’s & Don’ts of Investing
Deciding how to invest can be overwhelming. There are over 4,000 stocks trading in the US alone; approximately 1.5 billion shares traded each day. Simply said, a lot.
So how do you narrow down to picking what’s best for you and set yourself up for long term success? Below are some key Do’s and Don’ts when it comes to investing
Do Have a Plan:
Before you even think about taking your hard earned money and investing it, you want to first have a plan laid out. Develop an investment objective that determines what you’re trying to accomplish. I’m sure you’ve heard “If you fail to plan, you plan to fail.” It’s no different when it comes to investing.
Your plan lays down the foundation to which direction you want to go. Does your objective call for more risky investments or safe investments? Are you investing for retirement or to hit it big? Your investment strategy should align with your objective.
Do your Research:
After you’ve developed a plan of action, you have to make sure you do the proper research. Lots and lots of it. When you’re purchasing stock in a company, you’re essentially buying a small percentage of that company. You want to make sure that what you’re buying is actually worth the investment and that it’ll produce the type of return that you want. Television shows, friends, or articles can point you to certain investments but they don’t take the place of doing your research.
Do Diversify:
You’ve heard of the saying “Don’t put all your eggs into one basket”. Having a well rounded portfolio helps to reduce risk. Surely we would like to see our investments always go up but that’s not always the case. A well diversified portfolio limits the impact of a decreasing investment. For instance, if ABC stock is 100% of your portfolio and faces hard times then that’s your entire basket. However if ABC stock is only 10% of your portfolio then it doesn’t affect you as much.
Don’t Follow The Hype:
Probably one of the worst things to do is be a hype follower. Jumping from investment to investment because it looks good or popular right now. Hype followers let friends, coworkers, or TV recommendations influence them.
It’s important to do your due diligence on each investment that you put your hard earned money into or else you stand to lose more than you win. After you’ve done your due diligence, then you can make an informed decision. Remember that if it seems too good to be true then it probably is and those who follow the crowd usually get lost in it. *cough, cough* Bitcoin.
Don’t Be Too Emotionally Attached:
Stocks have their ups and their downs. Do not panic when your stock goes down or overly invest whenever a particular stock is going up. If the daily ups and downs make you too anxious, take a step back and get into a habit of checking your portfolio less frequently.
Whatever you do, don’t base your decisions completely on how the stock is doing right now but how you think it will do. “Where is this company headed”? “Where is this industry headed” are some of the questions that you must ask yourself. Marathon not a sprint. Try to find stocks that you’d feel comfortable sticking in for at least a year.
Don’t Wait:
Last but definitely not least, don’t wait! Learning how to invest does not come overnight. However, you can not afford to wait. Inflation kills and you must learn to use the power of compound interest to your advantage. Read, learn, and research as much as possible because the more knowledge you have, the better off you’ll be.
I would recommend in order to build knowledge and confidence, take a few stocks and spend a few weeks researching and monitoring how they do without actually investing money. When you’re ready to begin, start out investing a little and put more in as your confidence grows. Remember baby steps are better than no steps at all.