Don't Give Up On Investing In This Market
There's a lot of information out there about the markets and our current economic condition (most it politically spun or just plain wrong). Before you decide to abandon investing there are some basic things you should understand to avoid losing money and missing out on opportunities to grow your retirement.
You CAN profit managing your own market investments
Don't be discouraged. Despite your track record, or what you might have heard, you can make money in the markets as in individual investor. There really aren't any secrets, just a lot to learn. As a retail investor, you have some advantages over the large brokers and institutions. You can move your money quickly, give your portfolio personal attention and directly tailor your investing strategy to your goals.
The markets offer great potential for generating consistent returns and long term wealth. However, the markets aren't the "get rich quick" vehicle some make them out to be. It can be fun, fulfilling and profitable, but you need to spend the time it takes to learn what you need to know. Luckily, you can find those things on this site.
You should follow general economic news and learn Econ basics
As I mentioned before, investing requires time and effort. Part of the regular process is reading economic news and following general trends. And we're not talking about watching your favorite TV news channel. The economic illiteracy of talking heads and politicians is astounding. Don't listen to them. Find some quality, unbiased news sources you can scour every day.
Many sites will bring daily headlines together for you to make keeping up easy. You can use finance.google.com to set up alerts, or as a place where many sources are displayed on one page. RealClearMarkets.com is another. Find a few sources and sites you trust and enjoy.
As you do this, not only will you find great insights which influence your trading strategies, but you’ll also learn to get a “feel” for the market and you’ll be able to spot trends that may help or hurt your investments.
On this site we’ll constantly add education-focused articles that also touch on the condition of the markets and the economy, so you’ll want to make sure you visit daily.
It takes time and ongoing education – "Minutes a day" is a myth
Unless you plan to be a strict buy-and-hold investor, managing your investments is not something that can be done in a couple minutes a day; especially while you're getting started. There is a lifetime of learning in investing, and managing a portfolio that's profitable takes time as you learn to find trades, manage risk and diversify.
There are thousands of personality types and tastes, and there are investment styles to match each one. There are also varying amounts of time and energy commitments for each. Part of the process of getting started is determining how much time you want to put in to your investing and developing a strategy to fit that level of commitment. If you don't have the time or desire, learn the basics in our Stocks Essentials Course and find a good broker to manage your investments for you. If you have the time and catch the bug investing on your own can be a fun and gratifying process.
Don’t buy anything until you’ve practiced paper-trading
If you were offered a chance to shoot a free-throw shot at half-time of a basketball game to win $50,000 would you practice before the big shot? Of course you would. Why then would you risk your retirement or savings by investing immediately without practicing first? Hopefully you wouldn’t.
There are many great paper/practice trading platforms out there offered by good brokers. Take advantage of them. Take the courses on this site and before you trade a single stock, make sure you’ve practiced – and profited in your practice.
Short-term investing is very difficult to profit from. Think long-term
Short term retail investors lose money. It’s that simple. There may be a few who fully immerse themselves in trading and sweat out a profit, but the numbers overwhelmingly indicate that individual traders whose focus is short-term will eventually lose their money.
We advocate your portfolio be primarily focused on mid- and long-term investments. Don’t confuse long-term with buy-and-hold. They are very different. Smart long-term investing is still an active process requiring good timing, risk management, diversification and analysis.
But long-term retail investors have proven that’s where the profits are. Smaller transaction costs, lower volatility and reduced time managing positions make long-term investing smarter – if not necessarily glamorous.
Everyone wants to hit the home-run. Buy the stock that goes from $4 to $40 in 30 days. But those are very few and far-between, and traders looking for those usually strike out.
You MUST develop an overall strategy with guidelines you stick to
Retail traders are notorious for jumping into the market head first as they focus all their attention on finding and buying stocks. What they fail to do is properly educate themselves and learn to build a strategy to manage risk.
Investing is no different than any other part of life. Sure, it’s clichéd, but: If you fail to plan, you plan to fail. A few years ago, the US Olympic basketball team was comprised of professional basketball players whose combined talent had never been matched. They subsequently went into the Olympics and lost to teams with inferior talent.
Why? The planning was poor, and the pieces didn’t work right together. You may pick great stocks, but without proper entry points, exits, stop-losses and consistent position sizing those great stocks may yield a loss.
Part of educating yourself is learning what you need to know and building rules for an overall portfolio strategy that you stick to. Inside that overall strategy you may have allocations which require their own unique rules for more conservative or more aggressive trading strategies, and that’s a fine diversification model. And you may even have to modify your rules over time. But consistency is key and lack of it is catastrophic to a portfolio.
Learn, trade, profit and have fun!
In the end, only you can determine whether you have the time and/or desire to manage your own investments. There are plenty of good brokers who, for a price, will do it for you.
But if you take the time to learn you’ll quickly find the market is wide open for the individual investor. Nobody will put more time and concern into your investments than you and with the right approach, you can make strong returns year after year. And you’ll have a lot of fun doing it!