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How Do I Get Started Investing in the Stock Market?

Updated on March 26, 2016

Why Invest in the Stock Market

The stock market is one of the best areas to invest money. Over time, investing is the best way to build up wealth. Millions of people have their entire life savings invested. Getting started at an early age is the best way to make significant progress in this area. There are a lot of interesting market facts that you should know. Here are a couple of tips for anyone just getting started.

  • Think Long Term
  • Don't Panic
  • Make it a Habit
  • Do Your Research

For beginning investors, there are plenty of index funds that simply mimic the market. Often times, this is a great choice for people who are just starting out. Instead of trying to guess what the next Apple is, simply buying a fund to track the market is preferred. When investing, there is a lot of volatility to deal with. By thinking long term, you can avoid losing sleep at night and view downturns as an opportunity to buy.

Compounding Returns

The Power of Compounding

There are few people who know how much compounding can really help them with their financial situation. Compound Interest is known as the eighth wonder of the world simply because it is hard to believe how much wealth you can accumulate with little effort. Did you know that the average person can retire a millionaire by investing just a couple hundred dollars per month from the ages of 25 to 65? This is all possible as a result of the power of compound interest.

Measuring Returns

The rate of return is the annual amount that your investments will increase by. For example, if you invest $1,000 and the stock market goes up ten percent, you will have $1,100 at the end of the year. Over time, this initial investment really starts to add up.

According to the Rule of 72: Your investments will double every 7.2 years with an annual interest rate of just ten percent!

This is why it is so important to start investing early. The earlier you start, the sooner your money will be working for you.

Planning Your Investing

Risk Tolerance

The biggest indicator of your annual return is your risk tolerance. The beta on a stock is a measure of the volatility that investors should expect. Higher beta stocks have a higher return over time, but they are also a lot more volatile. Here a couple of examples:

  • New Companies in the Tech Sector
  • Biotech Firms
  • Oil Drilling Companies

By investing in these areas, you have the potential to earn a high return on investment. However, there are also days when you will regret ever investing.

Dividends

If you prefer to have less risk in your portfolio, there are a lot of solid companies that offer high dividend yields. A dividend is simply a quarterly payment to shareholders. This really helps to enhance the annual returns in your portfolio. Large corporations typically offer these dividends because they have an abundance of cash on hand. Learning how to harvest the power of dividends is an important step in the investing process.

How Comfortable Are You With Investing

How Comfortable Are You With Investing

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Staying Consistent

Think Long Term

The most important aspect of investing is staying consistent. There are going to be times when the entire stock market goes down for weeks or months at a time. Instead of panicking, this is the best time to buy more. Always remember to keep these rules of thumb in mind.

  • Buy Low
  • Sell High
  • Stay Consistent
  • Don't Panic

By following these simple rules, you can have better returns than many other average investors. Far too many people want to buy into the market when things are going good. In reality, buying when the market is going down is the best time to get a deal. Always keep this in mind when investing.

If you want to build high levels of wealth over time, the best way to accomplish this is to stay consistent in all types of markets.


The Oracle of Omaha

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