Buying stocks can be scary. Putting money that you ultimately need back, with interest, into the stock market, can be worrying. Know how much uncertainty you can tolerate, save a bit of money for playing and experimenting, and put the majority of your money into index funds.
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Know Your Risk Tolerance
According to the experts at Money Morning, risk tolerance refers to how comfortable you feel taking risks with your money. When you start to build a stock portfolio, it’s critically important that you know your Portfolio risk tolerance. If every transaction makes you anxious or causes any heartburn when the market bounces around, avoid making too many transactions. It’s tempting to sell and run when the stock market drops. Instead, understand that a market drop is a time to buy.
Do Some Experimenting
Check out higher-risk stocks and put some play money in there. Depending on how much time you have, you may find that more volatile stocks lead to a good payoff. Find an investment tool that allows you to make trades for the lowest fee possible to avoid burning up investment money paying for trades.
Use Index Funds
Buying an index fund means that you own a sliver of an entire market, such as the Dow Jones, the Nasdaq, or the S&P 500. Even after a market correction, you have a good chance of making money over time. Over time, the market rises.
Index funds are great for:
- buying and holding. Purchase and don’t touch.
- buying after the market tanks. It’s a sale!
- buying for the long term.
Everyone has their own risk tolerance. If you tend to panic, don’t look at your balance after a correction. If you have extra cash after a correction, do your best to buy more index fund shares. Stock up on stocks. You have the chance to earn money over time if you start early.
Consider Fractional Shares
If you can find a brokerage account that you can use to buy fractional shares, put some money in the account. There are many more traders that want to be able to buy a slice of big players in the market such as Amazon, Google, or Tesla.
While fractional shares used to be specific to just a few companies, this investment option is becoming more popular and more common. Again, find the brokerage that works best for your Portfolio trading style. Do your best to limit your trades to occasional choices. If you tend to sell as soon as you lose money, stick with index funds and focus on a buy and hold strategy. You have a very good chance of making money on a correction if you just hold on.
Stocks are risky, but the payout can be quite lucrative. If you already have a retirement account through an employer, you may be able to save on your current tax exposure with a Traditional IRA. If you prefer to have access to the profits now, a basic investment account with the lowest fees possible will serve.
Review Four Easy Steps to Building a Profitable Portfolio.