The average income in America is about $46,800 per year. While this is enough to pay rent and cover day-to-day expenses, it’s not always enough to help you live the life you dream of.
That’s why many people turn to the stock market and start making investments to grow their income and improve their savings. And it works, but it’s not without its challenges.
Making smart investments requires patience, knowledge, and an understanding of your personal financial situation. But with a bit of investment advice, you should be able to get started in no time.
Here are a few simple tips to help you get your feet wet.
1. Figure out Your Goals
Investing is about making money, but you need to think about what you plan on doing with that money before you can make good decisions.
Are you planning on investing to grow your retirement savings or do you want to replace your income from your day job and have a steady stream of passive income each month?
Understanding the things you want to accomplish will help you create a better long-term strategy for your investments.
2. Think About Your Risk Tolerance
Every investment you make has some amount of risk. After all, you never know when the market will crash or a company will go under.
But that risk is what allows you to earn significant returns on the money you invest. But no two people are willing to accept the same amount of risk. Further, the risk you’re willing to accept can and will change over time.
Before you start investing, think about the risks you’re willing to take. Do you prefer to invest your money in safer stocks that earn lower returns? If so, you have a lower risk tolerance.
If you’re willing to invest in stocks that are more volatile and have higher levels of risk, you’ll likely earn higher returns. If this sounds good to you, you have a higher level of risk tolerance.
There’s no hard and fast way to measure risk—it’s more of a personal preference and a gut reaction to the potential performance of your investments. But you should at least have a general opinion of what you’re comfortable with before you make your buy your first stock.
3. Think with Your Head, Not Your Emotions
The stock market can be volatile. And when things look rough, it’s always tempting to react with your emotions. But this can be costly.
Instead of reacting to the market, always take a moment to think about what your next move should be. In many cases, selling the stock won’t be in your best interest. Downturns are often temporary and selling at an all-time low can end up costing you money.
Think about the way the market behaved in the past. And think about what’s best for your strategy in the long-run. Then take action.
4. Choose Your Broker Wisely
Depending on the type of investing you want to do, you’ll need different brokers.
If you want a full-service investment firm with an experienced broker or advisor who manages trades for you, look for firms that fit the bill. Keep in mind that you’ll pay more for these services as you’re hiring an expert to make decisions for you.
But if you want to be in control of your investments and make trades yourself, you’ll be able to choose a cheaper broker. Just make sure the company you choose offers the features you need.
And always pay attention to the fees they charge. The last thing you want is to pay a premium when you’re barely using their full range of services.
5. Be Ready to Do Research
No matter what type of stocks you’re thinking of buying, you’ll want to do a bit of research before you start investing.
Familiarize yourself with the common terms, read up on the average performance of shares you’re interested in and do your due diligence before committing to any purchases.
This can make all the difference between finding the best penny stocks to buy or experiencing catastrophic losses because you hedged on a risky company.
The more you read, the better you’ll understand trends and patterns in the market. And the better you’ll be able to make informed decisions for your portfolio.
As we said before, all types of investments carry certain degrees of risk. And higher risk investments often yield higher returns. But that doesn’t mean you should invest in one specific company or industry type.
Instead, diversify your portfolio and look for stocks in different industries with varying risk levels. Choose a few lower risk investments to protect your assets and a few higher risk shares to help you make a bigger return.
This helps you avoid losing everything when—not if—the shares lose value.
7. Revisit Your Goals Throughout the Year
Once you start investing, you’ll likely notice that things change the longer you invest. Your goals may grow, your risk tolerance may increase, and your strategies may change.
That’s why it’s important to take a look at your overall investment plan at least once a quarter.
Look at the goals you made earlier in the year. Are they still the ones you want to achieve or have you already blown past them?
Were there certain types of investments you enjoy making more than others? Or do you want to get help from a more experienced investment advisor?
Evaluate your performance and the things you need as you go along. Then, make changes if things aren’t working for you or you’re ready to shake things up.
Use This Investment Advice to Get Started
Getting started with investing isn’t hard. You just need to do a bit of research, understand your goals, and set aside money to pay for those investments.
But remember, these bits of investment advice are just to get you started. You’ll still want to research on your own and read up on the industry before you dive in.
Check out our recent posts for additional tips, tricks, and advice on investments and improving your finances.