Investing can be nerve-wracking, scary, mind blowing and well, even a little fun. But you have to know how to do it first. Investing without any knowledge is like opening your front door and just tossing your cash out into the streets. It might blow away, your neighbor might strike it rich, or a strong wind may blow it back to you. But that’s not a risk you want to take. Before tossing your money away, you need a strategy and a plan.
If you pull up Google and start searching, you are going to find more search results than you can handle and most aren’t going to be easy reads. Tips and tricks for investing date back centuries, but how do you know which ones are the best? While I can’t tell you everything you need to know about investing, I can begin to steer you in the right direction by sharing with you the most valuable investment principles.
Invest With a Margin of Safety:—Look for stocks that are largely undervalued. Often, you can invest in a business for very little money. When the market reevaluates and sets the stock back up to a fair price, you will greatly profit. Not to mention, a price that is lower than it’s worth is more likely to climb back up in large numbers and return a profit than it is to decline any further.
Expect Fluctuation—The stock market is almost as temperamental as the humans putting cash into it. Some days the market feels good and quotes good prices, while other days the market feels rather disheartened and quotes lower prices. Don’t let this discourage you. Expect this and prepare for it by quoting how much you think a business is worth in your own terms. When the market takes a downturn and the value of that particular business you have been looking at falls below what you have quoted it at, consider buying it. On the other hand, when the market is looking up and the price of your stocks have risen well beyond your belief of value, sell it. In both cases, don’t sell or ignore stocks because you become dispirited. Hold on to what you have and wait until the right time when the stock market is in the mood you want it to be.
Dollar-Cost Averaging—This is for the more passive investors. Rather than watching stocks closely for a rise in value and comparing the price to your own value, you may also consider buying stocks that are at equal dollar value. Doing this at regular intervals frees you from deciding when and at what price to buy stock.
Distribute Portfolios Evenly—When you get into investing, it is easy to focus all of your attention on one particular stock that is doing well or not doing well. Don’t get distracted. You want to invest in more areas than just one to protect yourself from a market downturn. Invest in both stocks and bonds so that the income from bonds holdings will preserve capital.