The Dos and the Don’ts of Stock Market Investment

Stock Market Investment

Admit it, the first time you heard about stock market investing you were pretty jazzed. The complexities, however, gave you a reality check. You have watched all the financial reports and read all the books and researched the most interesting stock you would wish to put your money into.

The first step you took is to open a dummy account to start trading virtually. You have put some good practice under your belt. The trick is to know that there is no perfect time to start trading in the market.

Below are some of the unwritten rules of trading in stocks.

Do not panic (Keeping calm is key)

You will never have the ability to understand the market in one day. It is a continuous learning curve. Understand that the market is volatile and is controlled by forces well beyond your control.

When the price of a stock dips, it is important to understand the underlying circumstances causing the change. If nothing has changed about the organization, it is key to stay invested as it’s just part of a market cycle and you shouldn’t rush to sell the stock.

Don’t invest all your money at once

When there is a downturn in the market, that is the best time to invest in the market. It is a rookie mistake and a fundamentally flawed aspect to invest when the market is bullish. Pick up shares incrementally in cycles.

The market is not predictable and therefore, buying over a period will give you the benefit of averages; you can never tell when the market is at rock bottom. Buying over a period systematically will boost the value of the portfolio. Slowly and steadily build your portfolio.

Don’t give any weight to market forecasts. All opinions, pros, and cons are already built into the price of equities today.

If you emphasize the market forecasts in the media, it will derail you from getting meaningful content. The information lacks any investment value. It is best to understand that market forecasts only show you the expected direction in which the market is heading based on the available information. This forecast is only a forecast and not necessarily what will happen.

It’s their nature

Besides, market fluctuations are the very nature of share markets and should mean nothing to long-term investors. Making accurate market forecasts is tough as they are influenced by various factors like the outcome of political elections, the direction of the economy, interest rates, and world events.

It is also wise to know that these fluctuations are incorporated in the price of the share, stock, or mutual fund. It is important to have your analysis of the stocks or mutual funds. Commonwealth Bank shares are not exempt from this and can only be bought with the proper information.

Diversify your investments

Diversification is often confused with owning many investments. Invest in stocks, mutual funds, and shares. It is important not to solely depend on the performance of one particular industry. Do not sacrifice the quality of your portfolio. Do not use the price of a stock as an indicator of the strength of a stock.

Understand that the gains are not linear

Do not benchmark your returns with what you may have gained in the short term by participating in the equity markets. Investors who see a 10% return as fantastic will begin to believe that a 40% return is to be normally expected. Do not be taken in by recent experiences of appreciation for the value of your investments. Learn to see these as the buffer for the inevitable correction that will come in the future.

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