As a beginner at practically anything, the first task at hand is to educate yourself about the skill that you wish to master. It’s exactly the same when you want to become an investor, even if it’s just for yourself and not as a professional. Today’s blog will give you some excellent investing tips that you need to know as a beginner in order to start off on the right foot. Enjoy.
Tip #1: Always invest in something that you understand well
When you invest in an industry that you know well, and the businesses involved in that industry, you can avoid getting caught in so-called “stock market bubbles”. During a crash, you can then remain (mostly) calm because you’ve already determined what a company’s true worth is. and know that they’ll be just fine when things get better.
Tip #2: The less debt a company has, the less risk they have for you
When you’re going about the task of choosing individual stocks, it’s very important that you look as closely as possible at a company’s balance sheet. If you see too much debt, you can bet that it will hamper their growth as well as their ability to weather any economic storms that might arise. Less debt = less risk.
Tip #3: Instead of selling stocks to balance your portfolio, use dividends
If you take dividends in cash you can then invest them in other sectors where you don’t have as much exposure, Improving your diversification while keeping your tax risk low when you go to sell.
Tip #4: Make sure that your mutual funds don’t own the same stocks
Many new investors make the mistake of thinking that they’re well diversified because they own a number of different mutual funds. However, if those funds own many of the same stocks, you could be burned badly in a bear market because your portfolio isn’t quite as diversified as you thought it was. Morningstar has an “Instant X-ray” tool that can help. (http://portfolio.morningstar.com/Rtport/Free/InstantXRayDEntry.aspx)
Tip #5: Although it pays nothing, Cash can still be useful to keep on hand
If there’s a market downturn, having some cash on hand to take advantage of it will be very helpful. The fact is, there hasn’t been a stock market correction of 10% since the end of 2011, and the market is overdue.
Bonus Tip: Patience is the key to being a great investor
Here’s a simple fact; not every stock that you buy will take off immediately, even if we’re in a bull market. Sometimes even the best stocks can stall but, if you’re patient and believe in long-term investing, you will often see that what you thought was a stinker turns out to be a keeper