I have made a lot of money in the stock market, but I’ve also lost a lot of money there as well. Early in my trading career, it was like a pendulum swinging from one side to the other. I would make money, then lose it all, make money, then lose it all. This cycle would repeat until I finally stopped trading.
I went to 100% cash, and told myself that I would never trade again until I “figured this shit out!”
I went on to spend months and months studying the experts, analyzing my trades and actions, and developing my unique trading strategy. Finally, after a (seemingly) long hiatus from live trading, I went back into the market. This time with much more solid and consistent success.
Below are the lessons I was “fortunate” enough to learn early on in my investing career.
These 10 investing tips will drastically help anyone, as they would have saved me many thousands of dollars had I known and acted on them sooner than I did.
1. Stop what you’re doing
Stop! Don’t invest until you know what you’re doing!
Before doing anything, stop for a minute. You need to learn the basics.
Investing is hard and expensive if you don’t have a plan. Essentially everyone is making money as the market roars to record highs, but do not be led to believe that this will continue.
What happens if the market dips down by 20%? Are you prepared? What would you do?
It is easy to become lackadaisical when things are apparently “easy”. But before doing anything, you must have a plan. This will save you lots of money, as it would have for me when I started out!
Holding your money in cash is not the end of the world. The stock market will be there tomorrow and the day after, but you can only take advantage of it if you are still have money in the future to invest!
“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” – Peter Lynch
2. Set investing and financial goals
What are you trying to achieve? Where does investing fit into your wealth plan? Set your goals, and make them specific (I use Evernote to keep all of my goals and highly recommend it)…
How much do you want to put towards your future every paycheck, every month, every year? Where do you want to be in 5 years financially? If you could have one financial accomplishment for this month, what would it be? And out of your investing, what are you really trying to achieve?
It is best if you seriously consider and have answers to these questions. Also, be realistic. Any more than 10% per year every year is much better than most, so don’t expect to double your money in 1 month. You can make much more than 10% per year, but it takes work to get (and stick to) a plan and also remain self-aware enough to succeed.
Start with what you really want to get out of your investments, and then you can develop a plan to attack those goals.
3. Take advantage of free money!
If your company offers a retirement match (for example, if you put a percentage of your earnings into a 401(k), they match that up to a certain %), at least put in that amount.
You’re thinking, “Wait, you just told me to stop.” I did, but this is different. It is FREE money! It is a guaranteed 100% return, the only one you’ll ever get… so take advantage of it ASAP.
Note, this isn’t available for everyone. If you’re self-employed, there isn’t any “free” money to be had.
4. Learn who you are
As humans, we are not built to be great traders. Actually, we are conditioned to be absolutely terrible traders.
Our emotions (see: fear, greed) get the best of us, and make investing very difficult. We want to buy when everyone is buying (at the top), we want to sell when everyone is selling (at the bottom), and often don’t see things as they truly are.
Before you try to be a successful trader or investor, you have to learn what style of trading fits your interests, strengths and emotional level. There is no one single way to invest. There are tons of different profitable investing strategies. Some people prefer to trade actively and make small profits (and small losses), while others prefer to take a long term approach and invest with a time-frame that is in months, not days or minutes. It doesn’t matter which way you decide to invest, you just have to be sure it fits you and your goals. You have to 1) figure out what time-frames and strategies fit for you, and even more importantly, 2) do not deviate from the plan.
“An investor’s worst enemy is not the stock market but his own emotions” – Unknown
5. Pay down any debt
Many ambitious people try their hand at trading. Why not? There’s opportunity, challenge and potential reward – 3 things that we desire!
So, we start. We make a few good guesses, get lucky, and think that we’ve got it figured out. It seems easy. Then, when conditions change and the market drops, we lose all of our profits and then some.
Meanwhile, we are paying interest on credit cards and student loans. So, not only do we lose money in the stock market, but we lose money by paying interest when we could have put the investment money towards this debt!
I’ve seen it countless times, and continue to see it happen today. You cannot be financial free with debt. So, pay this off and you are well on your way to massive wealth!
6. Don’t be a hero
Investing is hard. There are professionals and computer programs that are more than happy to take your money.
With that said, success is easily achievable with a proven plan and some patience. Don’t expect overnight success, and don’t try to get your retirement money in one big bet.
Add, and continue to add to your investments. Slow and steady is (unfortunately) the best way to investing wealth. The keys are to take advantage of time and compound interest, and avoid the major losses. By not trying to be a hero, you can surely conquer these keys!
“The individual investor should act consistently as an investor and not as a speculator.” – Ben Graham
7. Turn off CNBC
CNBC is just like any other television station out there. They are an entertainment business. All that they want are viewers so that they can get advertising dollars.
Do me a huge favor and recognize this: they care zero about your investment returns. They just want you to be entertained and addicted to the information they put out there.
I used to be this way! It wasn’t until I turned off the boob-tube (why the hell is a TV called this?) that I started to make good money.
The “experts” will say to buy a certain stock, but they don’t tell you anything on how or when to sell it. When do you take profits? What happens if x/y/z occurs? Nobody ever knows b/c they quickly move on to the next talking head.
Mind you, I think you can learn a lot from CNBC, and it is really interesting entertainment a lot of the time. Just do not make investing decisions based on the advice given on any entertainment show!
8. Never listen to a hot-tip
If something ever seems too good to be true, it usually is. I hate to be pessimistic, but I see it over and over again.
The quickest way to lose money is by listening to a hot-tip. People believe they have an inside source. No, you don’t.
They know someone that knows someone at this company, and they’re about to “explode!” No, they’re not.
I’ve lost thousands again by listening to these “insider” tips. Do this instead: when someone gives you a can’t-miss opportunity, just write it down and monitor what would’ve happened with that money.
We have FOMO (fear of missing out), but this fear can cost you a lot of money. Investing well is being disciplined and often countering your natural desires. Be strong, get wealthy.
9. Create a plan
Now that you know who you are, let’s create a plan (to be covered in a detailed post soon). Some of the questions to ask are:
What type of time frame is good for you? What do you want to achieve? Are you investing or trading (there is a difference)? What are you trading? Why? When are you going to buy? When are you going to sell?
A plan eliminates your worst enemy when you’re investing: yourself.
“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” – Paul Samuelson
10. Stick to your plan
And the most important tip once you get to this point is to never deviate from the plan!
Now, if your plan isn’t working for an extended period of time, then you may consider changing the plan. But if you create a strong plan that matches your timeframe, it’ll work out over time.