Recently, as with many broke college students, I wanted to expand my disposable income. Unfortunately, with my arsenal of classes and multitude of clubs and activities, a part-time job stood just out of reach. I decided to do what every responsible adult ends up participating in: I diversified my assets and delved into the world of investment. I quickly learned that investing isn’t just a fun game you play in high school economics class where you want the numbers to be green. The investment game is complex and requires some research. Here are some do’s and don’ts that I quickly learned while beginning my adventure into investment.
Do: Research the stocks you are interested in purchasing. Knowing the intimate details about the stock’s previous performance and having a deep understanding of what the company specializes in is important. The better informed you are, the more likely you will make better choices in your purchases.
Don’t: Buy something because you like the sound of it or everyone is buying it. Do your own independent research and figure out which stocks are the best fit for your needs, whether they are stable or more risky. What someone else is doing with their own portfolio may not be the same as what you are looking to do. Buying ten shares of Apple may be a safe bet because it’s a stable company, but it probably won’t experience large increases.
Do: Diversify your portfolio. By buying stocks in multiple categories of corporations, you decrease the risk of all your stocks plummeting in value. This way, if all the technology stocks were to lose value, your shares in the agricultural industry will stay stable.
Don’t: Sell as soon as the stock starts depreciating. Stock prices naturally rise and fall throughout the day, week, month, and year. Variations in price are no reason to panic and sell all your shares. However, if they are losing too much value, such as a decline from $40 a share to $30 a share, you may want to consider cutting your losses. But a shift of a couple dollars is completely normal.
Do: Learn all the options available in terms of the actual use of the stock market. Many people who are beginners to investing don’t realize that when using investment apps such as TD Ameritrade, you can buy and sell at limits. This means that you can set a price at which you want to purchase a stock, and once the price of the shares reaches that point, the program will automatically buy or sell the stock for you. There are many other little tricks like that available to help you invest wisely.
Don’t: Stare obsessively at your portfolio. Yes, making sure you keep up to date with what happens with your money is important, but sitting at your desk and watching the stock price shift will just cause you anxiety. As I said before, price shifts throughout a day are completely normal and if you constantly watch the price, you may be tempted to sell at any shift or become too involved and forget to live your life. I understand that you are concerned about your money, but unless a major event occurs or the stock market crashes, the system is fairly stable and the likelihood your money is just going to disappear is very low.
Overall, investing in the stock market is a great way to diversify your assets as well as increase your spending capacity (if you educate yourself). This isn’t a game and trading can be quite costly if you are not careful. Most online trading companies make each trade around $7 which can add up quickly if you constantly buy and sell stocks without making much of a profit. Before investing, make sure you know your information.