Are you interested in investing your money in the stock market and considering investing in a stock portfolio? If you know what you want, that is already a good start. You already know how investing can increase your net worth. Here are three tips to follow to avoid making a fatal mistake on this path strewn with pitfalls.
Diversify your portfolio
No one is immune to a failed stock market investment. It happens to the best fund managers, even when they manage billions of dollars in assets. 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 the assets you hold, 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.
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 risky to face 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, rather than companies that are still in business today.
If you keep adequate risk limits (through the diversification mentioned above) and make the decision 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.
Do not burn the steps
It is exceedingly difficult to go public with a portfolio that works very well. There are a few steps you will need to take. 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 on the stock exchange.
With a little 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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