Different studies have shown that the young generation is willing to hold their cash instead of putting it in stock investing. According to a 2013 Accenture Report which focused on millennials and their willingness to put their money in stocks, it was discovered that 43% were not intending to invest their hard-earned cash in stocks. The reason being, most millennials hold on to the idea that stocks can quickly erode your financial reserves and leave you broke. But while that maybe true, it only happens when you don’t plan ahead. The same can always be said with other avenues of investing, and should not be narrowed down to stocks alone.
So how exactly do seasoned investors manage to make money out of stocks without getting burned? Well, that question can be answered in the following ways:
1. They familiarize themselves with the different types of investments
The problem with some people is that they have money but lack the patience to research on where to put it so that it can grow.
If you’re a newbie, you should be looking for 101 meet up groups of like-minded individuals. You should also learn how to avoid taking huge risks at forums such as Bogleheads. Don’t jump into the market without knowing what a bond, stock, mutual fund, or ETF is. And most importantly, if a certain investment instrument is too complex for you to understand, maybe you shouldn’t invest in it.
2. Never beat the market, but instead participate with its activities
In order to participate with the market activities while enjoying the benefits overtime, it’s recommended that you should first divide your assets into different classes. This may include small cap, medium cap, large cap, and so on. Then from there, and also depending on how much time you have before retirement, you could determine the balance of stocks and bonds.
Secondly, you should also invest a small part of your paycheck in other areas to avoid timing your trades. This will quickly turn into a habit that can help you avoid taking risks aggressively.
3. Investing in stocks requires you to set aside a small part of your portfolio
This is where a financial planner comes into the picture. If you’ve already understood what you want to get into, involve a professional so that they can help you determine the small percentage to commit to stock investing. But remember, you should always be willing to lose this money as well. This is a bit of psychological, but it can be done.
The most important thing is to have the mindset of a gambler while not risking too much at any given time. Maybe 2% would be good if you have lots of money. But if you’re doing just fine, maybe 5% to 10% will work the trick for you without exposing you to too much risk.
4. Diversify your investments
Putting all your eggs in one basket is always risky. When the idea goes wrong, it will surely blow up your entire portfolio. That’s why expert investors recommend that you should have risk structures set up by you from the word go. So spread your risks when investing in stocks. Not only will this give you a peace of mind, but it will cover you just in case things turn ugly.
5. Choose low-cost ETFs
If you want to reap higher returns without risking too much, a surefire way of doing so is to put your money in low-cost ETFs. These small charges and fees can eat up a third of your 401K returns overtime, says one study that was published by the Public Policy Organization Demos.
Therefore, one is better off going with low-cost ETFs and index funds because they keep the cost down while also limiting risks. Since you’re doing so with mutual funds, you’re getting access to over 8,000 positions which you can take advantage of. The advantage is that you’re not risking all your money to one company which could go bankrupt and convert your investments into losses.
Of course these are not the only tips to follow when pursuing stock investing. But it is certainly a good starting point for those who want to try stock investing without getting burned. So maybe the time to start is now. You may just realize that it was not as risky as it seemed before.