Beginners in the stock market believe that the timing of their purchases is relevant. Sure, starting at the wrong point might leave you with a big loss at the very beginning of your trading career. But, there are more important things you need to pay attention to.
You know, when you first invest, the time is your friend. If your investment was chosen well, the returns will compound over time, and add up pretty nicely, regardless what the market’s doing at the time of your first purchase.
Don’t waste your time
Instead of worrying about when you’re supposed to make the first purchase, consider for you long you plan to keep your funds in the market. This is not the same for every investment, as every one has its own risk and return degrees, and its own investing time period.
Bonds offer small, more dependable returns for a short time frame – about 3.7% on a yearly basis. On the other hand, long-term is good if you go with government bonds, as they have average returns of 5.4% per year. Stocks are great, as their average return on a yearly basis is 10.4% but you might need to be in it for the long haul.
When do I need the money?
The more time you need to amass your funds, the bigger is the risk you can take. This means you will be able to wait out those periods when returns are bad.
If you will need your cash in the next 4-5 years, try to avoid stocks and stock-focused mutual funds. If you need it in the next 3 years, avoid real estate investment trusts and mutual funds.
Once you eliminate these, you only have a few options on the table. You can buy deposit certificates and individual bonds.
But, stocks can be really alluring for long-term goals, since the returns are as high as they are, this might be a chance to good to pass on.
When should I sell?
You chose what and when to purchase, and now you need to make the next big decision – when will you cash out? Of course, this applies to stock mutual funds and stocks.
Investing isn’t as easy as – sell when they’re going down, and buy when they’re going up.
You should sell in certain situations
- When overall problems start to hurt the growth of a company’s earnings growth.
- If you entrusted your money to a professional manager in a fund with active management, and your manager leaves you to manage someone else.
- When the stock’s value becomes too high, there’s a high chance it will crash.
- When the company starts changing its base pillars. A company you invested with is branching out into new territories it never had anything to do with? Time to cash out.
Ignore the media
We know that Wall Street is always in the news, but they don’t understand the market well, so they focus on one index. You will often hear that index went up, and the market is bullish, or that the index went down, and the market is bearish. Ignore this, and study those ups and downs.
Never forget to review
You can’t fill your portfolio with stocks and let them be. You need to review them regularly in order to get the most of them. While you shouldn’t check them every minute of every hour, once every three months, once per month, or once per week would be perfect. This way you’ll be certain that your stocks are where they should be, and that you’re not losing money.