O.K., you are ready to start investing your hard-earned money into stocks. Congratulations. That’s great! If you haven’t invested money into stocks yet, no worries. You are about to step into a whole new world that is as fascinating as it is extremely exciting. Why?
Imagine making money while you sleep or vacation somewhere. Imagine making money while sitting at the beach or travelling to tropical paradises far away. Imagine not having to put up with shitty jobs and rude bosses, wasting time in an office cubicle. Welcome to the investing world!
With a moderate degree of effort you can create an investment portfolio of dividend-paying stocks that pay you passive income while you do whatever you please. Now, I can imagine that is something you’d like! After all, who doesn’t like to make money while relaxing?!
But where do you start? If you are new to the investing game and like to get started, here’s a simple 4-step list that should get you going.
1. Increase Your Financial IQ And Get Ideas
Well, if you want to be a successful stock investor, you have to know what you are doing. Duh!
Read up on companies and follow the financial news in order to get ideas. Improving your financial game and raising your financial IQ are obviously smart things to do.
I have more than 15 years experience in the stock market and read a whole lot of useful and not-so-useful books in my time. If you want to know which books are worth your time, check out my resource page for recommended readings as far as investing money is concerned.
Besides reading investing classics, I recommend you to read business publications such as Forbes or Kiplinger on a regular basis. Reading through articles at www.fool.com and www.seekingalpha.com is also a great way to get things going and join communities of like-minded people.
2. Open An Investment Account
The next step would be to open a brokerage account with companies such as Interactive Brokers, Schwab or RobinHood. All companies offer retail investors (i.e. you!) the opportunity to invest in stocks at reasonable prices.
Before you start investing your real money, however, I would recommend you to run a mock portfolio.
A mock portfolio allows you to buy and sell stocks purely in a demo portfolio with virtual money only so that you get a real feel for investing. A mock portfolio works the same way a real portfolio does, except that gains and losses are purely fictional. It is a great way to test the waters while alleviating anxiety. Use it to your advantage!
3. Do Your Research!
Doing your own research is critical to your long-term success in the stock market. Just because you bought a stock that went up in price and allowed you to book a profit easily doesn’t mean that you are going to be the next Warren Buffett. Stay humble, and don’t gamble! Everyone gains sometimes, and everyone loses sometimes. What matters is the batting average!
Also, keep in mind that there is a thin line between speculating and investing.
Investing requires you to have a sound basis for your investment decisions. On the other hand, speculating is gambling, and it is a good way to lose your shirt!
Research your investments and have a reasonable basis for your investment decisions. Be open to contradictory evidence and opposing opinions. You will be a better investor for it.
4. Play The Long Game
Playing the long game is vital to durable investment success, and it implies keeping your emotions in check when the stock market goes crazy. If you are easily swayed by your emotions, this is going to be a major problem for you as an investor, and something you should take very seriously. You want to be as rational as possible with respect to your investment decisions, especially at times when the shit hits the fan and the market heads for a slump.
Let’s say, for instance, that one of your stocks drops 50 percent in price. How are you going to react to the price drop? Can you deal with the stress, and are you going to carefully reexamine your investment thesis? Or are you panicking and throwing your shares on the market at fire sale prices?
The best advice I can give you – from my own experience – is to remain as emotionally detached from your investments a possible, and entirely focus on your long-term investment goals. Concentrating on your long-term financial goals will allow you to make better, more rational investment decisions, and will prevent you from making snap judgments that come back to haunt you should the market unexpectedly drop.
The stock market is a great way for building long-term wealth, and if you made the decision to start investing, I highly encourage you to follow through. The stock market is exciting and really fun. That said, though, keep in mind that the stock market regularly lays out some land mines for investors that can blow up in your face. However, if you keep your cool and take the long view, you will most likely come out on top!