You’ve heard billionaires claim to have made their fortunes in stock trading. You also would want to replicate the method that earned them millions. However, you’ve even heard that trading in stocks is not easy and that it can wipe out the little cash you have. The truth is that stock trading has immense potential to change your fortunes. Launching a career in stock trading has been made easy thanks to online stock trading platforms like Investors Hangout. You are also lucky to be reading this article since we will show you how to invest in a stock without too much risk.
1. Learn about the available types of investments
Just like in any other form of business, stock trading requires comprehensive research to understand what is involved. There are wonderful books on stock trading that you can read. Also, online portals with information on stock trading are in abundance. Hence, it should not be a great challenge to research stock trading. You need to be familiar with words such as stock, what is a bond, investment allocation, mutual funds and so on. Understanding the variously available stocks will form a basis where you can build your stock trading career.
2. Invest in a broadly diversified portfolio
The best way to invest in a stock without too much risk is to keep your costs as low as possible. You can achieve this by investing in index funds and ETF’s (Exchange Traded Funds), that way; you’ll keep your funds low as well as limit your risks. Investing in like say 10,000 positions (index approach) you are not at risk of one company falling out of favor with the market or going bankrupt.
3. Participate in the market rather than trying to beat the market
If you are looking at succeeding in the stock trading without too much risk, you need to avoid beating the market and instead participate in the market. You can go about this by investing in a diversified portfolio across different asset classes. An excellent example is international emerging, international diversified, small cap, mid cap, large cap, and so on.
4. Outpace inflation
Inflation spoils things if you are looking at long-term financial goals such as a child’s education, or retirement. Hence it’s advisable to invest some of your money in stock. Though stocks are the riskiest investments, they are known to outpace inflation since they offer the highest potential returns.
5. Losing money in the short term should not discourage you
Recent studies have shown that those below the age of 35 are not willing to risk their money. The best way of investing in stock should be to take aside a small fraction of your money and be ready to lose all of it. That way; you can trade with abandon and have fun.
6. Invest in a financial planner
Just like any other business, you need to invest in a competent financial planner or an investment advisor. The professional will help you know how to invest your money. Financial advisors will manage your financial portfolio professionally advising you when and how you should invest. They also guide you on your tax obligations and even insurance issues.
7. Take advantage of the time
Though research reveals that those who are below the age of 35 are afraid of investing, it is the most excellent time in life to invest in risky affairs such as stock trading; this is because even where the worse happens, you still have enough time to recover.
Trading in stock is a risky business because you might lose all your money. However, it is one of those investment activities that can outpace inflation because it offers the highest potential returns.