Recent surveys show that less than half of eligible people in America actually own stocks. Obviously, there are a variety of reasons for this statistic. Some people simply don’t have any money in savings that could be put towards stocks. Others choose to put their money in safer havens such as bonds or CDs. Unfortunately, many people do not put their money into the stock market because they are scared of what they do not understand. Since the stock market has averaged nearly a 10% return over the past 100 years, these people are missing out on massive gains. Simply put, if you have it, it is time to put at least some of your savings in the stock market. If done correctly and with the proper safety nets, stocks can be quite safe. Here are a few mistakes to avoid as you get started
Unbalanced Portfolio
Many beginning investors will start out by putting their money in only a few stocks, such as Motley Fool Stock picks. They do this because they don’t have time to research dozens of stocks, and they get really excited about the few they do buy in (usually do to media and social hype). When your portfolio is only invested in a few stocks, especially if all of them are in the same industry, you are making yourself susceptible to large losses. Major investors prefer to diversify their assets. This means that they try to buy shares in multiple companies, across multiple industries, that will respond differently in different situations.
For example, if the US decided to go to war, you might see the overall market start to drop. However, you would likely see the price of oil going up as well as companies like Boeing that make equipment for the military. You can buy companies in multiple industries and hedge yourself against bad announcements, etc. The more diverse your portfolio the safer your money will likely be. You may not make the same returns as some riskier investors, but you will also not lose drastic amounts of money like many of those same investors.
Choosing Expensive Brokers
There are dozens of online stock brokers that can help facilitate trades. They offer a variety of services at a variety of prices. Beginners often assume that a few dollars in broker fees doesn’t make much of a difference, but in reality the difference is huge. Most beginners will trade between 10 and 20 times a month. Using TD Ameritrade, a higher quality, albeit expensive, online broker, the cost would be between $100 and $200 a month to make those trades. Using Robinhood, a much lower quality, but completely free broker, that money would be saved. Considering many beginners only put a couple of thousand dollars into the markets to start out, $100 a month could be the difference between negative and positive returns.
Following Social
Most beginners quickly discover a site called Stock Twits that is essentially a Twitter for investors. While the social platform can be a great tool for discovering stocks and finding information, it can also destroy a portfolio. Many beginners will fall into the trap of a hyped up stock, where everyone on the message boards is saying that the stock is guaranteed to rise, only to lose half their investment after a disappointing announcement. Never allow someone else’s opinions or research to take the place of your own. There are many fake profiles on Stock Twits as well as plenty of people that have no clue what they are talking about. Use the tool to find stocks, but do not trust what people are saying, even if it feels like everyone is saying it. Everyone could be one guy sitting in his basement
These are just a few mistakes that most beginners make. Avoiding these will not mean that money cannot still be lost. Never invest more than you can lose. Mistakes will be made, but the markets overall trend has always been up. Keep a long-term vision and everything will be fine.
