(Pocket-lint) – The stock market can sometimes seem a bit like the Wild West from the perspective of a newcomer – it’s a risky area that’s hard to get your head around without some guidance.
Thankfully, though, there are resources out there to help you get started without feeling like you’re cut off and on your own, and one of the very best suites of tools is offered up by The Motley Fool, which has been helping people invest more smartly for years now.
Here are a few top tips direct from its experts to help you ride the market rollercoaster:
- Stick to your investing game plan (don’t panic sell!): Your broad plans shouldn’t change on a daily basis, so don’t be tempted to make random decisions.
- Invest Routinely and Predictably: If you’re lucky enough to still have a paycheck or to be making contributions to a 401k during this challenging period, don’t stop. Each time you get paid, put a little more money into the market. Don’t worry if it is an “up” day or a “down” day – in our experience, keep investing throughout the ride for the best performance.
- Don’t worry about where the bottom is: Because nobody, and that really does mean not a single soul, could know!
- Revisit your allocation: Use this as an opportunity to revisit the funds and stocks you’re invested in – how do these match up with your long term goals? Just because an industry has suffered recently, doesn’t mean it’s a bad industry to be invested in, but if you’re worried about the immediate risk of liquidity or bankruptcy with your investments, maybe take this as a sign that you should balance out riskier investments with some larger and better-capitalized companies.
We think those are some great principles to go into the market with, ensuring that you have a plan to stick to, and that you don’t panic your way into losses that could have been recovered with time. There are some other major categories of investment that you should probably be considering, though, which will impact how you go about making gains.
For example, you might find that the more hands-off approach suits you, in which case you’ll perhaps favor Low-Attention Tools which you can leave bubbling away. These encompass ETFs and Index Funds, for example, and are often picked by accounts like 401(k)s.
One of the tactics that The Motley Fool often sees work for people involves putting a majority of their assets into index or low-attention funds like these to ensure that they don’t require constant management. That frees you up to spend a bit more time and effort on smaller, higher-exposure investments through brokerage. It’s a diversity of investment that keeps things lively without putting everything at risk.
The Importance of Diversifying Your Portfolio
Diversification is, in fact, key to doing well on the market – people only tend to think about diversification as it applies to the companies they’re invested in, but there’s actually a lot of different types of diversification.
You could diversify your actual assets by owning more than just one asset class, like REITs, stocks, bonds, commodities, and more. There’s also tax diversification: having money saved in both Roth and pre-tax/traditional accounts. Finally, there’s the broader brush of industry diversification, which would see you owning equity in plenty of different companies within different industries.
The more you diversify, the safer you are from unexpected events, but there’s no “right” amount of diversification – it all depends on each individual and their own plans and risk tolerance.
Investing on a Budget
Of course, when we’re talking about new investors, we’re not likely to be talking about people who want to pump millions into the market. If you’re just starting out, make sure you’re investing in the most tax-advantageous way possible, though, even if it’s for small amounts.
This means opening a Roth IRA (if your income allows it) or taking advantage of a 401k to save money for retirement without overpaying in taxes.
In principle, though, remember that it matters less what you invest in and more that you just invest in general. If you’re already saving for retirement and want to invest in a brokerage account, set aside a certain amount of money every time you get a paycheck to invest.
You can do this by setting up a budget – make sure every dollar is accounted for. Anything leftover you should automatically have pulled from your paycheck and deposited in your brokerage account. Then don’t wait to invest it! Just invest it when you get paid, regardless of if the market is up or down. This ensures that you don’t fall into the trap of trying to time the market.
To demonstrate that small amounts matter – if you get paid bi-monthly and put away $10 per paycheck, at a 6% annual interest rate, after only a few years you’ll have put away at least a few grand as a nice nest egg in case of emergencies.
Above all, though, and as always, don’t invest any money you can’t afford to lose. Your first priority should be saving money in an insured savings account if you want it to be secure.
These are just some guiding principles and ideas to get you started with your investing journey, but another massive leg-up you can give yourself would be to use The Motley Fool – its range of financial tools can help point out the best opportunities for you, and guide you to bigger returns than you’d be able to manage on your own.