If you have some surplus cash that you want to invest for the long-term, stocks can be a good option. But before you put your money in the stock market, you must recognize the fact that there are risks involved.
Stock prices can move both upwards and downwards. As an investor, you must understand what causes these movements. If you are successful at doing this, you will increase your chances of making money on the stock market.
In this post, we’ll identify the steps that you should take when making your investments. We’ll also list the dos and don’t that you should adopt to lower the level of risk you are exposed to.
Step-by-Step Guide to Invest in the Stock Market
Here’s a list of activities that will help you to invest in the stock market successfully:
1. Examine your financial position
Consider this to be a preliminary step. Make a list of your assets and liabilities. Your assets would probably include the machinery or equipment that you use in your business and the surplus cash that you plan to invest in the stock market.
Your liabilities would comprise the money that you owe to your suppliers or the bank. You may also have a credit card balance on which you pay the minimum amount every month
If you have any credit card debt, it’s advisable to pay it off before you invest in the stock market.
That’s because credit card debt is expensive. According to a recent report, the average APR on credit card debt is 17%. If you have extra funds, you must pay this off immediately.
2. Familiarize yourself with the stock market
Spend a little time understanding how the stock market works. Which are the different financial products you can buy? If you have identified a specific stock to purchase, study its price over the last five or ten years.
Remember that you must do all your research before you invest. You don’t want to find yourself in a position where you discover that the company you have bought shares in is facing a financial crisis after you make the purchase.
Research each company where you are considering buying stock.
3. What’s your risk appetite?
If you plan to invest in the stock market, it’s essential to understand how the risk-return tradeoff works. This principle is also referred to as the risk-return paradigm.
What’s the risk-return paradigm? It’s just a fancy way of saying that investments that offer a high return carry a greater degree of risk. So, if you buy a stock with the expectation that its price will rise sharply, you should also be prepared to lose money.
ALWAYS be aware that you may end up losing your investment.
4. Appoint a broker
This is the person or firm who will help you buy and sell shares. There are a few basic precautions that you must take before you choose a broker.
Is the brokerage registered with the Securities Investor Protection Corporation? If it is, your money will be safe even if the brokerage is forced into bankruptcy.
You should also check whether the brokerage is a member of the Financial Industry Regulatory Authority (FINRA)? This is a regulatory body that ensures that the broker will deal with you in a fair and honest manner.
Learn here How to find a stockbroker to work with you.
5. Control your emotions
It’s critical to create a financial plan when you invest in the stock market. When you buy a share, you may decide that you will hold it till it appreciates by, say, 10%. You could also decide that if the price moves downwards, you will sell at the point when it loses 5% of its original value.
That’s a good plan, but will you be able to stick with it? Mike Tyson, the former world heavyweight boxing champion, famously said, “Everybody has a plan until they get punched in the face.”
When investing in the stock market, always follow your head, not your heart. Always set a limit on the quantity you are willing to lose and the amount you’ll settle for if you win.
If the share price falls immediately after your purchase, will you sell and take the loss? Or will you hold on in the hope that the price recovers? It can be difficult to adhere to your plan when your money is involved.
Dos and Don’ts When Investing in the Stock Market
Before you invest in the stock market, review this list of dos and don’ts. You may find some information that could help you to meet your investment goals.
- Be prepared to invest for the long term. It may take years before your investment pays off. Here’s what legendary investor Warren Buffett has to say about people who expect to make quick returns: “Now if they think they can dance in and out [of the market] and buy and sell stocks, they ought to head for Las Vegas.”
- Buy low and sell high. That seems very obvious. Unfortunately, many investors do the exact opposite. They purchase shares when the market is at or near its peak and sell when it falls.
- Do your homework. It’s crucial to get to know the details about the company that you plan to invest in.
- Consider investing in “Dividend Aristocrats.” These are a group of 57 stocks that have been increasing their dividends for at least the last 25 years.
- Don’t invest all your surplus cash immediately. Keep some money aside for an investment opportunity that may arise later.
- Don’t buy stocks on a hunch. If you are going to invest thousands of dollars of your hard-earned money in a stock, you must gather and analyze as much information as you can about the company.
- Don’t look for the perfect stock to buy. There’s no such thing. Every investment will carry a certain degree of risk. You must be willing to accept this and hope that your choice will yield the expected result.
- Don’t expect every stock you buy to appreciate. Your goal should be to make the targeted return on your total portfolio.
What Are Other Good Options to Invest My Money?
If you are hesitant about investing in the stock market, you could put your money to use in another way. Plow it back into your business.
You would need additional funds to take your company to the next level. If it’s the availability of cash that’s holding you back, consider taking a small business loan from Camino Financial. If you borrow from us, you will get the benefit of a fixed monthly installment for the entire loan period. Our interest rates will not change mid-way. In other words, this is a risk-free option to grow your business.
Do you want to know the installment amount that you would have to bear on a Camino Financial small business loan? Use our business calculator to find out.
We provide small business loans for amounts up to $400,000. Repayment can be made over periods ranging from 24 to 60 months.
Choosing Camino Financial as your lender is a good idea for several reasons. Our motto is “No business left behind.” Our customer service staff and loan specialists will work with you to help you decide on your best loan option. As our norms are flexible, even small business owners who don’t have a credit score or a credit history can approach us for a loan.
Apply today to find out if you’re eligible for a small business loan from Camino Financial.
The Bottom Line
Remember that stock market investments are inherently risky. There’s no guarantee that you’ll make money if you invest in the stock market. In fact, a company’s share price could remain the same for years. If you’re unlucky, it may even decline.
Given these facts, does it even make sense to invest in the stock market?
Consider investing if you have excess cash that you are willing to risk. If you’re fortunate and have picked the right stocks, you can make a high return on your investment.
However, for most small business owners, diverting excess capital back into their companies could be a better idea. You can use the funds for expanding your product line or venturing into new territories. If you do this, you’ll have the opportunity to boost your profits and strengthen your company’s financial position.