Best Investment Ideas for People with Zero Knowledge in the Stock Market
By Blanche Ullrich
May 06, 2021
Every one of us aim on building wealth for a secure future and to one day retire with financial stability. However, investing in the stock market could reap major benefits, but not everyone among us are knowledgeable and up-to-date on how the stock market and the Wall Street runs. We are here to help you with tips on how you can benefit from investing in the market without worrying to keep track of the market updates.
- Decide a Budget You Want to Invest
You need to be wise in this step and come to decide upon an amount you are able to afford easily to invest, without facing any financial burdens in your daily life. For this, you will need to manage a six to eight-month emergency fund plan to keep in your bank account and CD. The purpose of this step is to prepare you for an emergency expense that might come up unexpectedly. This will prevent you from losing money as it would be a bad idea to sell investments stored in CDs before the maturity date. Since you are all geared up for an emergency, try using 15% of your pre-tax income as an investment. Moreover, since many companies offer 401(k) and company matching to their employees as an incentive, this form of free money can be the best source of investment.
- Be an Early Bird Investor
Surely, the early you start investing, the bigger shall your rewards be. Although 20s may not be your high-earning years but it is still wise to start making your investments since you don’t have any huge expense at that age, like no mortgage payments to worry about. Besides, the practice of making investments from an early age will help you develop a habit of making savings and not wasting money on useless things.
- Accept Risk Factors
You must understand the fact that anything with a low risk factor comes with low returns, just like the bonds we invest in. However, making investments in the stock market can result in bright rewards. Have you heard of Rule 110? Let’s take this one as a good tip: Let’s minus your age from 110 to compare your allocations of stocks to bonds. At the age of 30, a person would target for around 80% in stock market investment, while only 20% in bond investments.
- Regular Investments, a Little by Little
The is a secret technique regular and successful investors use. The strategy is called dollar-cost averaging (DCA). This is a system in which the investor invests a set dollar amount of a specific investment in fixed intervals, regardless of what is going on in the market. Ignoring the fluctuations in the market, the investors keeps investing the same amount of money in fixed intervals. This strategy helps you buy more and more shares when the price is low, which will help reduce your average cost per share as the time passes. Although this process is slow, but surely beneficial in building wealth in the long run. Early investors and those starting off with small stakes must use this strategy as a magic tip.
- Investing in S&P 500 Index Funds
Investing in S&P 500 is one of the best ways to grow your wealth. You will be investing directly in a market that consists of 500 companies that make up 80% of the U.S cap market. This market cap is comprised of stocks that covers all sectors. Some of the biggest S&P 500’s main components include Microsoft, Amazon, Apple, Johnson & Johnson, Facebook and Tesla.
- Research Before Investing in Individual Stocks
Surely, making investments in individual stocks will bring you more return than investing in the S&P 500. However, you will have to take your time and effort to research the market of the individual stock you are willing to invest in. Since investing with no knowledge about the stock could result in overpaying for fees. Moreover, beware of penny stocks that are cheap and priced at a couple of dollars. Your risk of losing your investment here is very high since the sponsors of these stocks have never been in profit and are under major financial crisis.
- Avoid High Expense Ratio
You must be careful of paying extra for your investment fees. Make sure the fee you pay is below 0.1%. You should also try looking into four index fund by Fidelity, they offer funds for almost every U.S stock with zero-fee-fund.
- Taking Easy the News of Stock Market Crash
A wise thing to do is to not obsess over news of stock market crash. Unless you are only looking forward to learning about what led to the crash, in order to plan your investment successfully. For that, it is useful to read about the facts that lead to stock market crashes. This can help prep you to make wiser decisions on making your investment in the stock market when and as you deem fit.
- Aim for Long-term Investments
You must understand that the key to success for an investor is based on patience. Don’t expect to make an investment today and get a full return next week. Even if you hear thrilling talks of short-term market performances. You must aim for investments longer than five years or above. The longer you let your investment grow in the stock market, the more return it will bring to you. Remember, withdrawing your money anywhere sooner than five years will mean your money does not belong in the stock market and it will hardly bring any return.
- The Best Investment Ideas Maybe Around You
Once you have developed an interest and decided to learn about the stock market, you must first start by looking into a handful of companies that offer products of your interest. You must then prepare a draft of the key points you may want to research. You can start by researching the company’s’ strategy and execution, studying analyst views on the company and learning about how they started their journey.
A wise tip is to do a patch-test by applying the lotion to a small area of your body to see if it has any adverse reaction; that’s right! We are talking about not going all in with investing a huge part of your portfolio too soon. For which, there are brokerages that make it possible to buy fractional shares. Thus, protecting your investment without risking too much of it too soon.
However, to be a successful stock market expert, one must have confidence in oneself, reminding oneself that even the experts today had failed before. Who knows, you may be someone the next generation may call an expert.
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