The last little while in the stock market has felt like a doozy.
Everything I learned in finance would have told me that the stock market is due for a correction. It is trading at all-time highs, so of course, it has to come down, right?!?
How can companies possibly deliver results that are in line with such crazy valuations?
On top of everything, I would have never guessed that the stock market could maintain momentum in the middle of a health crisis. I can see why many do consider the stock market as a form of gambling.
I guess on some level, it is. You do risk your capital to earn a return. But that’s just how any business operates!
The challenge is to create the odds of success in your favor by making informed decisions. Becoming a more confident investor will help increase the chances of good investing decisions.
Creating an investment plan that allows you to start investing, build wealth, and be confident about your investing decisions is possible. (psst, notice I said investing, not trading?).
So how exactly does one become a confident investor and keep their hard-earned money in the stock market?
Here are my top tips to becoming a more confident investor while managing your money!
Tips to Be a more Confident Investor
Start Small
If you are new to investing, especially if you are looking to invest in specific stocks (rather than index funds and ETFs), don’t put all of your savings into investing.
Keep aside an emergency fund. Make sure that you have enough cash to meet your living expenses and obligations.
Then, decide how much of your capital you are willing to part with – because you will make some mistakes.
Start with a little, maybe even as little as $100, to get comfortable with investing. These baby steps will build your skills and make you a more confident investor.
How much risk do you want to take on?
These days there is a lot of volatility and swings in the market. It is easy to get caught up in FOMO on the upside or start to panic sell when your investment is going against you.
Try to be rational about what you want to buy and sell.
If you’ve done your research and are holding onto a stock that has a good underlying business, then there’s no reason you should be looking to sell just because it dipped a little.
But you do need to decide on how risky or conservative your portfolio should be.
Decide on what percentage of your portfolio need to be in growth or value stocks? Do you prefer stocks with stable cash flows like dividend stocks?
Educate Yourself: Ask for help / Read lots
If you are looking to start investing, start reading. There are many good books, blogs, and of course, the news to get your feet wet and better understand the stock market, its inner workings, and how it is affected by the broader economy.
If any of the words related to the stock market or investing scare you, look them up.
I love using Investopedia to look up basic (and advanced) terms related to the stock market. As your read more, you’ll become a more confident investor.
Don’t trust only one source
Do your research!
The stock market is a marketplace of buyers and sellers. There are movements in price because the buyers and sellers see value in the individual stocks at different price points.
You should never rely on one person’s opinions. There is nothing wrong with getting investing ideas from your friends and family, Facebook groups, analyst opinions, Twitter, or other forums. It can help broaden your view of the market and help you see patterns. But buying a stock because that one friend told you to is not a great investing plan!
Start with what you know
When you invest in the stock market, you essentially own a piece of the business. You probably know a little (or a lot) about a few industries. Start by looking at those companies.
You can also get market-wide exposures through ETFs like SPY, which invest in companies part of the S&P 500.
I would suggest starting with playing to your strengths. Your knowledge will help you be more confident in your investing decisions.
For example, I rarely invest in the healthcare space because it is not something I have a background in, nor do I have an interest in learning more about the inner workings of that industry.
If I wanted exposure to the healthcare industry, I would look to a good ETF or index fund to invest in the healthcare space. I would still do my due diligence on this, but my dollars would probably be better managed by a professional than myself in that space.
Keep your emotions in check
If you invest in specific stocks or sector-specific funds, you might be more active in checking the status of those stocks – whether that’s daily, monthly, or quarterly.
When prices are volatile and move constantly, we might feel the need to make moves, buy more, sell a little.
Be aware of how your emotions are affecting your investing.
Is it purely emotional? Would you be able to give someone else a logical reason for your decision? As you become more self-aware of your choices, you will become a more confident investor.
Diversify
Don’t put all your eggs in one basket. It’s not just a cliche. It’s an essential piece of advice, especially when it comes to investing.
That is why ETFs and index funds are popular ways to invest. You get small bits of exposure to lots of different businesses.
It is essential to make sure that your money is in the best position to continue to grow.
Create a plan
If you want to get serious about investing, you need to have a plan.
How much of your income are you looking to invest, how often, in what sectors? These are all questions that will drive your investing decisions.
Your plan should also address your risk tolerance.
If you start to write out your plan, you will feel more about investing than gambling away your hard-earned money.
This place will also increase your confidence in your ability to invest!
Just start
Starting is the most important step. Now, not everyone might be at a stage where they can start investing.
Once you know that it is the right move for you, DO NOT PUT IT OFF. The earlier you start investing, the better you will do in the long term!
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