Are you interested in the stock market and considering investing in a stock portfolio? If you know what you want, that is already a good start—even better, getting guidance before jumping into stocks. Here are three tips to follow to avoid making a fatal mistake in this path strewn with pitfalls.
Diversify your portfolio
No one is immune to a failed stock market investment. Even when they manage billions of dollars in assets, it happens to the best fund managers. There is only one solution to limit the damage when this kind of event occurs. It is to diversify your portfolio of actions.
First, avoid investing all your savings into corporate stocks. You can never rule out a recession or a stock market crisis, and it is advisable to hold a certain percentage of bonds (directly or through funds) in your portfolio. You can also add real estate, raw materials, etc. However, the shares should rarely exceed 60% of your assets, except in exceptional cases (if you are a business executive, for example).
To obtain a diversified portfolio, you must hold shares in different sectors of the economy. Do not buy only banking and financial stocks, even if they may seem like the best deals of the moment. In the same way, vary the countries. All the markets do not progress at the same time nor at the same speed. Remember to be patient.
Know how to make mistakes
When dealing in the stock market, you must recognize your mistakes quickly to limit the damage. You cannot be against the market; it is more powerful than you, and it is what decides the price of the action. Unless you are very well informed and know something that the public does not, it is very risky to be facing the market. Stocks do not have a maximum price, but they can very well go down to zero. Bankruptcies are commonplace in the stock market, and many more companies disappear than companies that are still in business today.
Keep adequate risk limits (through the diversification mentioned above) and decide to close a position when one of your investments turns sour. You will be able to recognize your mistakes and limit the damage. Of course, selling a losing position requires a step back and great wisdom, but it is often the best decision. Learn from your mistakes!
Do not burn the steps
It is not effortless to go public with a portfolio that works very well. Do not invest all your savings in one go on the stock market; go gradually by paying a sum monthly or quarterly on your account title. We advise you to start, for example, by investing in trackers that will ensure the task of diversification. Trackers or ETFs make it possible to invest in a sector (non-diversified) or more general (and therefore diversified) index. With fees and annual fees often limited (less than 1%), they are an inexpensive alternative to investment funds, and their performance does not have to blush those of some hedge funds.
Once you are used to placing orders, you can start taking positions with more potential in the forex market, CFDs, commodities, or shares of small businesses. Continue watching and learning on an ongoing basis by consulting specialized forums on the internet and reading the works of experts of the stock exchange.
With a bit of methodology, it is unlikely that you regret your investment in the stock market. Hopefully, you will reap the benefits after some effort and not miss this opportunity to grow your capital.
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