While the stock market can yield solid returns, it can be a minefield for those who aren’t financial professionals or who are new to investing. Newcomers can get tripped up trying to follow trends or blind themselves to the realities of the market. It’s important to have a long-term plan and take the time to learn best practices.
With care and attention as well as the right foundation and education, investing in the stock market can be a valuable part of anyone’s financial plan. To help new investors get off to the right start, 12 professionals from Forbes Finance Council share their best advice below.
1. Stop ‘Playing’ — Establish Goals
Playing is for children. Responsible adults establish goals, make a written plan for achieving those goals and then determine how a diversified portfolio of stocks may help them achieve those goals. A reasonably balanced and diversified growth portfolio should easily return between 6% to 8% over most 10-year periods. At a 7% return, your portfolio should double roughly every 10 years. – Erik Christman, Oxford Financial Partners
2. Follow A Plan
Whether you’re doing a five-minute trade or a five-month trade, be very clear on your entry and exit strategy, have a clear plan and follow it. I would always learn from a mentor who is very experienced and knows the market in which you’re trading. – Khurram Chohan, Together CFO
3. Educate Yourself
Educate yourself regarding behavioral finance. Understand your risk tolerance. Take the time to work with a fiduciary to develop a diversified allocation, and stay the course. These three steps may sound easy, but if you fail, chances are you violated one of them. As an investor, you are sometimes your own worst enemy. Those who can escape their own hubris are way ahead of the pack. – Lance Scott, Bay Harbor Wealth Management
4. Start Slow With What You Know
When beginning with stocks, my advice is to start small and only with what you know. You want the investments you make to provide dividends that you can reinvest either in the same investment or something else. You need to make sure that no more than 10% of your finances are invested in any single investment. Over time, you can build out your portfolio and make it more diversified. – Jared Weitz, United Capital Source Inc.
5. Invest For The Long Run
The stock market isn’t Las Vegas. Invest in stocks for the long run, as they tend to be volatile and may experience deep losses during short time periods. Over the long run (15+ years), stocks tend to generate attractive returns relative to other investments. Making annual contributions and investing your money via retirement plans aligns with this thought and is a great way to invest over time. – Sandi Bragar, Aspiriant
6. Research, Research, Research
You can find a wealth of information online. Blogs with titles like, “How to Invest Your First $1,000” should point you in the right direction. The stock market is a gamble, and you want to come as close as you can to a sure thing. Learn everything you can before you fork over your hard-earned money for anything. Note that becoming successful is a process of trial and error, even when you’re informed. – Jeff Pitta, Medicare Plan Finder
7. Get Expert Advice And Diversify Your Portfolio
Always get advice from an expert before making investments in the stock market, as it is very risky and one can lose money. Ask a financial adviser or expert at a broker-dealer to assist with investment choices before leaping into the markets. Diversify your portfolio—mutual funds are a safer bet than stocks as they are managed by experienced people. – Tito Pombra, Core Compliance & Legal Services, Inc.
8. Invest In Mutual Funds And ETFs
I’d highly recommend thinking long-term when dealing with the stock market. Rather than investing in big-name stocks you’ve heard of that are inherently more volatile, I’d recommend mutual funds and ETFs. Diversify your portfolio as much as you’d like to minimize risk. You’ll be okay as long as you aren’t expecting overnight results or think you’ll make a killing by day trading. – Jonathan Moisan, Advertise Purple
9. Follow The Path Of Successful Founders
I’m a believer in founder-led companies, and I follow this principle in public markets. My top qualifier is to invest in company stocks led by successful founders. I don’t believe transformational companies are built by hired executives who focus on the few quarters ahead. For newcomers, invest half your money in an index fund, and the other half in founder-led, iconic companies you believe in. – Baris Aksoy, AV8 Ventures
10. Invest In Your Passions
If you really believe in a brand or are enthusiastic about an emerging trend (could be nitrous craft beer, marijuana-related industry suppliers or the latest cupcake trend), go for it. Failing your own personal inspiration, subscribe to some Main Street investment magazines or newsletters and read them diligently—you will eventually find companies interesting to you for your first bet. – James Hewitt, Travelex
11. Invest In What You Know
Invest in companies that do what you know a lot about. If you work at a bank, invest in banks. If you drive a truck, invest in trucking. Investing in what you know means that you will enjoy watching over your investments, and as you see things changing you can adjust your investments accordingly. You need to diversify as well, so buy different investments within your knowledge base rather than just one sector. – Chris Tierney, Moore Colson CPAs and Advisors
12. Have Patience And Discipline When Volatility Strikes
For true success in the stock market, investors must have the patience and discipline to wade through a volatile market with a sharp focus on the long term. To paraphrase Benjamin Graham, in short, the market is like a voting machine, tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine, assessing the substance of a company. – Greg Herlean, Horizon Trust