One of the best ways to grow wealth long-term is to start investing as early as possible. There are many ways to invest your money, one of which is stock trading. Many young professionals get into trading without doing the proper research just because their friends are “investors” or because they’ve seen the media talk about the stock market.

Investing without any prior knowledge puts people at higher risk of losing their investment, and these losses may discourage them from putting their money into stocks again. This article will offer some tips for people that are just starting out in stock trading and help beginners get their footing in the market. Keep reading to learn more!

6 Starter Stock Trading Tips

A lot of people assume that they can’t fully understand the ins and outs of investing if they aren’t financial experts. While it’s true that you cannot learn everything about the stock market from a few articles, learning about the basics will help you make better choices when investing. Look below to find six of the best stock trading tips for beginners.

Decide How Much You Want to Invest 

It may seem obvious, but it needs to be said: you shouldn’t invest more than you can afford to. You should retain enough money to maintain your lifestyle without feeling negative effects from the investments you make. This is why it’s also a good idea to determine your risk tolerance. How much risk are you willing to take? How much money are you willing to lose if an investment doesn’t work out? 

The answers to these questions will affect your investment decisions. For example, you might invest in a stock with lower risk when trying to make long-term gains compared to when you’re trying to make smaller short-term gains. Knowing both your risk tolerance and the maximum amount of money you’re willing to invest puts you one step closer to determining your own investment strategy. 

Have Investment Goals 

Along with your budget and risk tolerance, it’s also vital to determine your investment goals. This means you need to decide what you want to achieve by investing. What returns are you hoping to see? Are you looking to make some money now, or do you plan on using the money you get from your investments later in life, for example, after you retire? 

Having specific investment goals helps you stay on course when making investment decisions. Additionally, when opening a brokerage account, both online platforms and traditional brokers will ask you to share your ultimate investment goals and objectives.

Consider Avoiding Individual Stocks at First 

You’ve probably heard at least one person talk about a big investment they made or a great stock pick that truly paid off. However, what people often don’t tell you is that some of these particular investments also did very poorly for a long period of time. These stories can lead to unrealistic expectations about what you will be able to achieve in the stock market.

The stock market is full of professionals whose job is to invest money into stocks. If you’re a beginner and you have little experience with investments, the chances that you will outperform them aren’t very high when going head-to-head on individual stocks. 

To start out, it may be a better idea to put your money into an index fund, which can either be an exchange-traded fund (ETF) or a mutual fund. These kinds of funds hold hundreds of different stocks, and each share you get owns all the companies that are included in the index. 

Be Prepared for Stock Market Fluctuations 

For many beginners, the hardest thing to accept is seeing a loss in their investments. Because the stock market can fluctuate so drastically, it’s vital that you get used to dealing with losses from time to time and train yourself to handle sudden value changes. Otherwise, you may panic and buy or sell without fully considering the implications, which is detrimental to your strategy in the long run.

If you have a diverse portfolio, the performance of one single stock usually won’t have a massive impact on your account’s performance. With that said, you cannot eliminate all risks because even index funds (which are extremely diverse) can fluctuate, especially if a big event happens that affects things on a global scale (like the current war in Ukraine). 

When investing, you need to prepare yourself for possible downturns and short-term volatility if you hope to get the desired long-term returns. It’s important to note that people often only talk about market volatility when the market is going down. However, from a statistical point of view, the market is volatile when going up as well. Grasping this concept can help you come to terms with the times when your investments aren’t doing all that well.  

Have a Diverse Portfolio 

When it comes to investing, “don’t put all your eggs in one basket” is some of the best advice you can get. Having a portfolio that doesn’t rely on the performance of one or two individual stocks is the key to surviving market fluctuations. That’s why we already advised you to start by investing in an index fund, as it offers you investment in a variety of stocks from the start. 

Diversification is important because it reduces the risk you take on and actually helps your overall returns. Of course, you can diversify on your own by purchasing stocks from multiple companies. However, it’s often much easier to buy into an ETF or a mutual fund as they already have the needed diversification built into them, and you don’t have to do as much personal analysis. 

Finally, remember that diversification isn’t simply investing in the stocks of many different companies; it also means investing among different asset classes, which adds another level of complexity to your strategy. 

Consider Your Fundamental Investment Strategy 

When we talk about having an investment strategy, we’re referring to having a set of principles that will help you make decisions and achieve your financial goals. This is a plan that will guide you while taking into consideration your goals, risk tolerance, and the kind of capital you want to achieve in the future. Investment strategies can be conservative (low-risk) or highly aggressive (aiming for rapid growth). 

Investors use strategies to help create their portfolios. Committing to a particular investment strategy will also help you when working with a financial professional, as it will enable him/her to understand how you want to go about investing.

The kind of strategy you choose depends on a variety of factors that include:

  • Age
  • Goals 
  • Financial situation
  • Liquid assets
  • Desired returns
  • Expected timeframe

Investment strategies can change over time, and you’ll likely want to adjust yours after every major life change. During the course of your life, your goals and desires change, and your investments should reflect that. 

Typically, when you’re young, you can try a more aggressive strategy to get higher returns and increase your capital. However, as you start getting older and more people to depend on your income, you will likely want to decrease the risk and focus on a long-term strategy that will help you retire early and support your loved ones. 

In Conclusion

Getting into stock trading and investing when you don’t have the proper knowledge can be daunting, and it also decreases your chances of success. Even as a beginner, you can make better decisions and not waste money with the simple tips we’ve given you. Although, if you truly want to build a good stock strategy based on your goals, financial situation, and current capital, then the best thing you can do is hire a professional to guide you along the way.

At Alpha Wealth Funds, our financial planners have experience working both with people who are just getting into investing and with people who already have some experience in the stock market. We’re ready to help you craft a strategy that will allow you to reach your goals and give you peace of mind. Reach out today to learn more.

Please feel free to reach out to me on this or any of your investment needs or questions. I may not always have the answers at my fingertips, but I promise I will get them for you. Michael Torrence

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Michael Torrence – Investment Advisor Representative: Michael was born and raised in Ohio and attended The Ohio State University. After College, he was commissioned as a 2ndLt in the United States Marine Corps. He attended his initial training in Quantico, Virginia, then graduated at the top of his Primary Aviator Class and was selected for the Strike (Jet) Platform.

Founded in 2010, our services include boutique hedge funds, separately managed accounts, financial planning, estate & trust services, private placements, and in-house concierge services for high-net-worth individuals, families, and businesses.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. All investments involve risk, including the loss of principal.