Important Investing Concepts to Know
You can cut down on the time it takes to learn how to invest successfully in the stock market by studying the common mistakes other people make and avoiding them yourself. The best way to increase your chances of success with your stock investing portfolio is to learn the fundamentals of the market and put them into practice. Or by making sur you put your investment portfolio into the hands of a professional portfolio manager.
The follow are some of the vital points to take note about stock investment management,
Recognize and Avoid Speculative Bubble
Avoid speculative bubble at all costs! When a lot of people suddenly start buying a certain asset, it’s called a “speculative bubble.” So, as a general rule of thumb, if your friend who knows nothing is purchasing a certain asset, go far away from such unless you can prove by yourself that there is a convincing opportunity in it!
In 2017, you might see complete bitcoin novices buying into the market. When a bubble hits its height, it’s time to get out of the market before it bursts. Many participants in the Bitcoin bubble purchased the cryptocurrency at record highs.
In the eyes of the novice, Bitcoin could only go higher. Conversely, seasoned investors understood better and fled the Bitcoin movement. After this bubble burst, the price of Bitcoin dropped to below $3,000, but has since recovered and is currently trading at much higher levels. Stocks, ironically, are the one thing any individual should not just purchase because they are on sale.
Growth in Value and Distributions
Many investors, surprisingly, lack a basic comprehension of the stock market’s fundamental tenet: how money is multiplied. Which occurs as a result of dividend payments and increased stock value.
Payouts made to stockholders on a regular basis are known as dividends. Some well-established businesses pay dividends once a month, while others do so once a year.
Income stocks are another name for dividend stocks because of the steady stream of income they give to shareholders, which can make them a valuable asset to your investment portfolio. Although dividend payments cannot be certain, the greatest dividend-paying firms often increase their dividend payments yearly to encourage and reward shareholder loyalty. To know more about any particular asset or dividend stock, it will be better to ask your investment portfolio manager for guidance.
Investors seeking dividends typically seek out firms with a history of doing so. The dividends they receive can be reinvested to provide a compound interest income stream that can grow at an exponential rate.
The term “compound interest” refers to the gradual increase in value of an investment. When you invest money in the stock market over a lengthy period of time, that money grows through a process called compounding. In addition, by collecting and reinvesting these dividends, additional money may be compounded.
The stock market is full of distracting noise. Following the daily ups and downs of the stock market, it is like a certainty that some will make a bad investment, but that don’t have to be you. When considering an investment in the stock market, you should not rely on the opinions of strangers you find online. Emotionless decision making is essential when investing in the stock market.
Hence, the best advise from Omura portfolio managers is that mute the noise! Then create your own educated judgments and stop stressing out. Don’t allow noise effect your financial selections.
In order to be successful, your investment plan must be both scalable and repeatable. Therefore, even while investing in stocks and talking stocks with your friends, you should first be careful about where you obtain your advise from, and second, disregard what your friends or family tell you and perform your own due diligence.
Appreciation of Capital
Capital appreciation is the principal means of financial gain in the stock market and a means to also increase the value of your investment portfolio. Essentially, this is buying low and selling high on the stock market.
Common examples of asset or capital appreciation include buying and holding property, however in this case we’re talking about the stock market. In layman’s terms, this involves acquiring an item with the intention of reselling it for a profit at a later date.
Make sure your money is properly diversified.
One common rookie error is putting all of their money into a single stock. This is a kind of mistake that you can easily avoid with guidance from an investment portfolio manager.
What risks would we be taking if we only bought one stock? Why? Because it’s possible to lose a lot of money if something goes wrong with the stock you bought, no matter how secure it is. Depending on the stock, this might be good if your investment is under $1,000. However, if you’re looking to invest hundreds or tens of thousands of dollars, this is not acceptable.
As you put more money into the stock market, diversification becomes more crucial. Rule of thumb: Don’t put more than 5% of your investment portfolio into any single asset. Of course, the amount you have invested and the investing plan you choose might have a major impact on the outcome.
Many people try to “time the market” by investing all their money at once when they believe the market has struck rock bottom, based on their emotions, historical market “trends,” news, or other considerations. No one can reliably anticipate the direction of the market or a certain stock, thus doing so is a waste of time.
Dollar-cost averaging is a better investing strategy. To achieve this, you need to spend a fixed sum over a long period of time, preferably in equal increments, to get a market “average.” For example, instead of investing $1000 to acquire shares in a firm, spend this $1000 over a 5-day or 10-day period. You would want to do this so that you aren’t making a purchase at the market’s all-time high and losing money the next day, or at the market’s all-time low and gaining even more money.
It makes sense at times to not dollar-cost average, especially with lesser investment amounts, but it’s a guideline you should follow regardless.
Avoid Too Much Variety
If you want to spread your bets throughout the market, invest in an index fund that tracks the S&P 500. Simply “dollar-cost averaging” your money into foolproof index funds from firms like Vanguard or BlackRock will do the trick. However, you shouldn’t go crazy and acquire hundreds of different stocks. Some persons with modest savings (less than about $50,000) have more than 50 equities in their portfolios. You shouldn’t have to deal with the stress of this disorganized mess. You should just buy an index fund instead of confusing yourself with this much stock ownership.
A typical rule of thumb as a novice is to own no more than five stocks, providing you have roughly $5000 to invest. It’s important to remember important dates like earnings releases, annual reports, and other corporate announcements. Even holding five firm stocks is enough to keep you engaged.
Tax Benefits Over the Long Term
Being a long-term investor, as opposed to a day trader, can result in large tax savings. To begin, the highest rate, applicable to regular income, is applied to short-term capital gains (1 year or less).
Long-term capital gains are those held for 366 days or more, and are taxed at a reduced rate, potentially saving you 20% or more of your investment depending on your tax status. The Internal Revenue Service provides useful information on capital gains and tax rates, which you may use to calculate your own tax liability.