There are some things that you can learn from the stock market that are applicable to other situations in life. In this article, we discuss the 3 Big Ideas.
Diversify your holdings
The old saying “Don’t put all of your eggs in one basket” is as true as ever. When it comes to investing, business, or any other activities it is always preferable to diversify your portfolio.
With investing, diversification can be done by not betting all of your money on a single stock. If you invest for the long term, no more than 10% should be risked on a single position. When you speculate for the short term, no more than 2-3% of your trading capital should be risked.
Also, the risk-reward ratios needs to be in your favor. You don’t want to risk $1,000 for a potential gain of $300. The opposite should apply.
Does some thorough analysis before you commit
Taking action will not always pay off. What you pursue, needs to be worth the time, effort, and money. Otherwise, you are making a bad choice.
When you see some stock that appears as a great buy, remember that it’s not all gold that shines. You need to review the company carefully and read reports on it. There are actually two kinds of investment analysis: fundamental and technical.
Fundamental analysis is about looking at financial statements, industry developments, new products, projected growth rates, and so on. Technical analysis involves looking at charts to see how the trends develop. Learn as much as you can about both of these kinds.
After you do a thorough analysis, decide your investing time horizon. Then be patient. If you think it’ll take up to a year for a company to recover, then wait. Some investors get bored and decide to sell too early.
On the other hand, if you got a lemon, be willing to let it go. There’s no reason to have your money parked in a bad investment.
A word about brokers
There are many online brokers offering their services to retail investors and traders. You want to make sure that you find a good company that, in addition to an advanced trading platform and resources, offers zero commission trading for stocks and ETFs. There are many companies out there that offer these types of services. When it comes to things like this you want to make sure that you take time to do your research and find the best possible business for you.
Often, commissions make a difference between profits and losses. Therefore, selecting a broker that charges no commissions is worth considering.
This is guest post from Kara Masterson. She is a freelance writer from West Jordan, Utah. She graduated from the University of Utah and enjoys writing and spending time with her dog, Max. Kara recommends TradeZero as a resource to learn more about stocks.