Top 10 Tips To Get The Best Out Of Your Stock Investment
If you are investing for the first time, the stock market can be an exciting place to be. However, it is important that you keep the end target in mind - namely to grow your money.
For that reason, it can be a good idea to follow the below tips to get the best out of your stock investments. There are several stockbrokers in the UK that will advocate different ideas or concepts that can help (or overwhelm) you when entering the market. Here are our top tips to strip things back to basics to help you stay on top of your stock portfolio.
Know Your Financial Health
The stock market can be a great place to help solidify your financial health. Yet, at times when the markets are down, it can mean your financial health takes a beating. Even the best stockbrokers have bad days investing in the market. It is essential, therefore, before taking any positions in stocks that you know the true standing of your financial health. In effect, this means coming to a conclusion on how much you could afford to lose before your standard of living takes a hit.
Understand Your Risk Profile
Once you know your financial health, it is far easier to come to a conclusion on what your risk profile is. Your risk profile is your ability and want to take risks. It could be that you actually have a very healthy financial standing. Yet, that does not necessarily mean that you want to take on risky investments. On the flip side, at the other end of the scale, you could want to take on lots of risky investments and be happy to. However, you may not have a big financial buffer to rely on should investments go askew, while also having several pre-agreed outgoings making your ability to take on risk that much less.
Use the Best Trading Platform
One of the best ways you can arm yourself with the ability to trade stocks well is to use the best stock platform possible. Trading platforms with great, efficient software can really support making the best investment decisions. Many trading platforms also provide research as standard which can also help you make even better decisions as to what stocks to add to your portfolio.
Employ the Use of Diversification
Many trading platforms will also have tools on hand for you to calculate your asset allocation. Such tools can also help you in your quest for diversification. Diversifying your portfolio with several stock holdings is a way to mitigate against risks that can be eliminated from a portfolio. Doing so helps limit the downside potential of your portfolio and therefore helps limit the size of potential losses.
Have a Strategy and Target
Having a strategy and target when starting to invest in stocks is another great way to arm yourself against losses, while materially improving your chances of making gains. Having a strategy from the beginning means that you do not employ many tactics at a time that may hinder your ability to make large returns. For example, you could take a long view and target returns over a long investment period like 3-5 years. Doing so will often mean you employ the use of buy and hold - buying stock and believing that they will grow in price over time, despite short-term price fluctuations.
Do Not Chase Outperformance
The reason that having a strategy to stick to, along with a target, can help is that it means that you do not chase outperformance of the market that may encourage you to make poorly timed decisions. Doing so can impact your returns as you may trade more, incurring more fees. Or it could simply mean that you react strongly to a very short term impact of news on a stock, either by buying even more stock or by selling earlier than you would have, had you stayed true to your strategy. Chasing outperformance is a natural reaction for many investors, yet it is something that has a highly negative effect on returns.
Look at Other Asset Classes
The stock market can be a great place to grow wealth and improve personal finances. However, that’s not to say it is the only asset class worth investing in. Look at other asset classes too to see if they can help you reach your investment targets. Doing so can also help diversify further risk as different asset classes move in different ways to market news. The correlation, or lack thereof, of asset classes, is a good way to minimise losses.
Keep an Eye on Fees
When choosing your best stockbroker in the UK or trading platform, be sure that you know how they structure their fees. All stockbrokers or trading platforms will charge fees somehow - even if they say they have a 0% commission fee structure. The key is to ensure that they are as low as they can be while bearing in mind your investment strategy. Some platforms will give preferential rates to an investor who trades more, while others will give better rates to those that buy bigger trade sizes, yet trade less overall.
Anticipate Volatility
The market will move. Often, it will bounce about too much for some investors’ liking. Volatility is a short term thing though that will definitely occur. There are days or weeks where it is high, and times that it will be lower - but there will be no time that markets do not go both up and down on a daily basis. The key is to get comfortable with that as soon as possible. Even in years where markets had a huge crash, they do eventually start to tick up again in the long run.
Don’t Get Emotional
It is so hard, but if you can stay unemotional about investing, you will put yourself in a far better position than if you let your emotions get the better of you. It is when emotion creeps in that you start to chase outperformance or make decisions that are not in your portfolio’s overall better interest. This is where having a long term target or strategy can help calm your nerves, so you hold when you need to and sell when you know in the long term it is for the best.
