Investing in stocks can be a great way for Moms to get some extra cash for the family.
You don’t even have to have a ton of experience to invest in stocks, you just have to do your research. Keep reading to uncover ten tips on playing the stock market.
1. Know The Number Stocks You Need When Playing The Stock Market
While there isn’t a rule set in stone, there is a rule of thumb that is helpful in determining how many stocks you should have in your portfolio. The closer you get to retirement, the more you’ll want to reduce your exposure to stocks so you can preserve your capital.
You can also subtract the number 110 from your age to figure out what percentage of your portfolio you should invest in stocks. Then you’ll want to adjust this number up or down based on what your appetite for risk is. You’ll also want to make sure you’re up top date on your SEC filings.
2. Index Funds Vs. Individual Stocks
You’ll also want to understand the difference between index funds and individual stocks. Index funds allow you to invest in a lot of fo stocks by buying one investment. Meaning, an index fund can get you exposure to all 500 stocks that are in that index.
Index funds can also be a great tool to diversify your portfolio while reducing your risk. So if your money is spread across let’s say hundreds of stocks, and one crashes, then the impact on your portfolio will only be minimal.
3. Know The Number Of Different Stocks You Should Buy
If you are planning on buying only individual stocks, you’ll want to buy at least 15 different stocks across various industries. This will help you properly diversify your portfolio. But keep in mind, this might not be practical if you are just starting out.
Another thing you can do is buy a lot of individual stocks and invest most of your money in index funds, then buy a couple of stocks with the rest. This will take out most of the guesswork in investing, while still letting you get some experience with evaluating stocks.
4. Decide Between Dividends Or No Dividends
A lot of stocks decide to distribute their profits to shareholders by dividends. Others will choose to use their profits to reinvest in the growth of a company. Typically, but not always, dividend stocks are less volatile and more defensive than non-dividend stocks.
You’ll want to note that just because a company pays a high dividend, that doesn’t mean it’s a better investment.
5. Understand How Much Profit You Can Expect
If you’re a new investor, you’ll want to take a long-term view of the markets. At any year, the market could lose or gain a lot of its value. But over long-term periods of time, markets are actually consistent.
6. Only Buy What You Know
If you can’t clearly explain what a company does in one or two sentences, you shouldn’t invest in it. Meaning, if you don’t understand most biotech companies, then you shouldn’t invest in their stocks. It’s important that you invest in businesses that you can easily understand when you’re just starting out.
7. Watch Out For Red Flags
There are a couple of red flags you should watch out for when you are choosing stocks. You’ll want to avoid investing in any company that doesn’t earn any profits or stocks whose share prices always seem to drop when looking at a three or five-year chart.
You’ll also want to avoid investing in any companies that are currently under investigation, or businesses with a lot of debt. Also, don’t invest in any stocks that have either an unstable dividend history or have recent dividend cuts.
8. Understand How Volatile Your Stocks Are
Before you consider buying a stock, you’ll want to know how volatile you can expect that stock to be. This can be determined by looking at the stock’s beta which is included in pretty much any stock quote.
A stock’s beta basically compares its volatility to the overall S&P 500 index. Betas that are less than one, means the stock should react less to market swings. If the beta is more than one, then the stock is more reactive.
9. Know History Repeat Itself
Sure, past performances don’t guarantee future results, but there are some historical patterns that usually continue. Specifically, if a stock has a history of profitability and an earning growth that tends to keep up. Stocks that have a strong history of dividend increases are more likely to increase their dividends in the future.
You’ll want to do some research to compare the historical behavior of any stocks that you are considering investing in.
10. Rookie Mistakes To Avoid
And lastly, here are some dangerous rookie traps that you should avoid. Know this list doesn’t include everything, but these are the most costly.
Buying Penny Stocks
Penny stocks are stocks that trade for less than $5 or any stock that doesn’t trade on the NYSE or the Nasdaq or NYSE. Sure, there are exceptions, but if you are just starting out, you’ll want to avoid these stocks.
Buying Stocks On “Rumors”
You never want to buy a stock because it’s “about to” do something. Always do your research, and look at the stock’s history and patterns. You want to buy a stock based on a well-informed decision with the long term in mind.
Using The Margin
Sure, there are some valid reasons to use margin which is borrowed money. But if you’re just starting out in investing in stocks, you’ll want to avoid this. While investing on a margin can amplify your returns it can also increase your losses.
Invest In Some Stocks
Now that you know all about playing the stock market and what rookie mistakes to avoid, get out there and invest. Always do your research, and consult with experts, and the stock market can be very lucrative for you. For more tips and tricks for Moms, be sure to check out our blog.