Friday, 1 January 2021

8 Stock Market Investing Tips For Great Returns


If you're working on your retirement nest egg, this article will help you avoid mistakes that some people are dealing with and might not even know they're making. Everyone's looking for a quick and easy way to riches and happiness, whether it's trying to pick a winning stock or hoping to get that winning lottery ticket. Striking it big is especially enticing to impatient young investors who think their investments will take forever to grow at an average rate of return. Uncertain strategies may work, but most people get rich slowly and steadily without taking huge risks


Before you hand over that first chunk of change, here are some proven strategies to keep in mind that should be followed by investors.




1.  Invest For The Long Term

Long term investing is the best strategy for maximizing growth and balancing risk. One of the main reasons this is beneficial is that it allows your portfolio to grow despite short-term market fluctuations. Day trading which is a short-term investment activity is risky, as stocks rise and fall very quickly and sometimes without apparent reason. Additionally, long-term investments provide the added benefit of compound interest which can far out-earn your active income in many cases 


You may consider owning real estate for a long time so you can take advantage of long-term appreciation and cash flow increases. It's best to set it and forget it once you have picked an investment that you feel good about, and continue investing year after year as your equity increases. As Warren Buffett said, you're making a terrible mistake if you stay out of a game that you think is going to be very good over time. Because you think you can pick a better time to enter it. 


Remember, time in the market is more important than timing the market





2. Don't Be Emotional

Being emotional when choosing an investment vehicle is another hit or miss strategy. If the market goes down, keep investing. Too many people get spooked when the market drops suddenly and feel forced to cash out. Instead, consider downturns as a discount on the stocks that you own or want to own and have faith that the market will recover. In contrast, many investors feel great when their investments are up, making them want to purchase more. This might not be a good idea as the same amount of money should be invested regularly.


When one of the worst financial disasters hit in 2008, the dow was down a staggering 34%. Over time, the market recovered and has since provided a healthy profit for those that waited out the turbulence. Those who sold off their entire portfolio when fear and terror struck had likely lost a large amount of their retirement savings. The emotion of panic is not a useful one when planning for long-term investing. 




3. Choose Stocks Over Bonds

Warren Buffett says if you save money you can buy bonds, you can buy a farm, you can buy an apartment or house or you can buy part of an American business. The average long-term return for the overall stock market has been around 10%. Currently, a 10-year bond yields less than 3%.


Warren Buffett says stocks have been much more attractive than bonds for quite some time and he has faith that betting on the American economy will not disappoint. Long-term investing in profitable businesses will return a substantial sum when compounded over and over again. Just take a look at how stock market investing has made Buffett one of the richest people in the world 




4. Use The Proper Accounts

Between IRAs, Roth IRAs, 401ks, brokerage accounts, and more. There's a lot to comprehend when it comes to account types. The many different options can be overwhelming, but the proper answer can be found with some guidance. Each individual has their own set of specific needs and goals which is why it's important to consult a tax professional. Some accounts provide tax advantages but many have extensive limits and requirements, while other accounts may provide more freedom and perhaps a larger tax burden


Furthermore, you'll want to consider tax diversification to hedge against rising and dropping tax rates. Taking the proper steps now will potentially save you thousands in the future, and ensure your investments align with your goals.




5. Invest With Low Fees

Fees are often overlooked when considering different types of investments, but the fees charged are a substantial part. Tony Robbins says that if you have two people each with a $100,000 and one person pays 1% fee on their mutual fund and the second person pays 3%, the person paying 1% will have about double the money in their account over time.


The average mutual fund charges 3.1% per year according to Forbes which is a substantial amount in comparison to the average index fund which charges just 0.2% annually. Consider purchasing funds with commission-free brokerages like Robinhood to save even more. Pay attention to the fees you're paying because it could cost you hundreds of thousands of dollars




6.  Avoid Leverage

High-risk investors will borrow money to invest in the stock market gambling at the cost of the finance capital will be paid for by the returns of the stock's appreciation. For instance, borrowing $5,000 at 5% from a lender might be a good investment if the $5,000 in the stock yields a higher than 5% return. This is risky and if the value of the stock purchase will deleverage capital decreases in value, the borrower still owes the money


It's actually like betting with a bookmaker, if the gambler loses, the money is still owed to the lender. Leveraged investments are more commonly thought of in real estate particularly with rental properties, but this could also be purchasing stocks on margin. While it's possible the returns could be higher with more leverage or higher mortgage, this leaves less room for error if there were to be a market downturn or an interruption in rental income for unforeseen reasons.


In fact, dave Ramsey went from millionaire to broke in his 20s due to over-leverage and now preaches to pay off all debt




7. Be Realistic With Your Expectations

Have you ever heard of a land development deal that was too good to be true? Instead of prime commercial development land at an insider's bargain price, the land turned out to be a useless swamp. What about the stock tip you heard that's supposed to shoot up 3000%. If you hear about a stock promising an insane return, don't walk away, but run. Something like this is likely too good to be true. Be realistic in your expectations of returns on your investments. Over the past 90 years, the stock market has yielded an average of 10% so don't blow your life savings on a speculative investment. Remember, slow and steady wins the race.




8. Diversify Your Investments

Unless you're a professional investor, diversifying is certainly recommended. Every economic disruption is different so it's impossible to predict what the next one will be like. Owning various sectors will protect you when one area does poorly and will reward you in certain areas outperform. Diversification doesn't have to be complicated, in fact, it's possible to be diversified with just one fund. If you're only invested in stocks, consider purchasing some real estate if you know what you're doing. Someone only invested in real estate should also own some stocks to stay protected


You never know how the next economic catastrophe could impact your life savings







Conclusion

It's important to carefully consider these components of investing to ensure you maximize your profitability. Investing for the long term and being emotionless with your strategy will help your account perform well over time. Be realistic with the returns you can expect and don't be greedy.


Additionally, diversify not only your investments but the accounts in which they're held. Whether you're starting your investment journey or just want to increase your returns, follow these steps to prevent costly mistakes, and ensure you have a successful investing career for years to come.

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