Stock market crashes can hardly ever be predicted. Experts have been saying for the past 5 years that the stock market crash is coming. However, when it does hit there is little we can do about, or can we?
The main ways to overcome these obstacles and become a better investor will be discussed shortly in this article. After this, you will feel confident in your investing abilities and you will learn the skills needed to prepare for the next crash.
The first preview to investing is that you need to be prepared to have thousands of dollars wiped off your net worth. This is occasionally going to happen. However, you must hold on because the boom could be just around the corner. If this is not for you then you should only allocate a tiny proportion of your portfolio to shares.
A tip I like to share is that you should wait till 15% of your investment is lost until you sell. This is because if a company is dropping by 15% it is more likely to keep going downwards. In this time you can look elsewhere for better opportunities.
This can turn a lot of people off investing in the stock market. It is seen as too risky, but if you were to invest $10,000 30 years ago in Ordinary Australian Shares (All Ords). That today would be worth approximately $135,055 which equates to a 9.1% return per annum. Global shares showed gains of 7.0% per annum which made a $10,000 investment into $76,426. (see photo below)
Investing is for the long term, you can’t expect your shares to start making you money the first day you get them. That’s not how it works, good companies take the time to reach their true value potential. If you’re day trading in the stock market, that makes you as bad as the punters at the TAB. That’s why the money you invest should not be needed for at least the next 10 years. Now without further ado here are the biggest do’s and don’ts of investing.
YOU CAN NEVER DO ENOUGH RESEARCH
Researching is the fundamental key to making a good investment. It is what keeps you confident in your decision when the market is volatile and others are skeptical. Also, never ever just take someone’s advice for a tip without doing your own thorough analysis. A little bit of research goes a long way.
DIVERSIFY YOUR INVESTMENTS
Many investors think that diversifying is owning many investments. However, diversifying is having many different types of investments. Ones that target different sectors of the market. My current stock tips Ramsay Healthcare & Vocus Communications are two completely different sectors of the market (Healthcare & Telecommunications). This will help to protect your portfolio from any major losses over time.
WHY MOST PEOPLE FAIL INVESTING
Everyone is so quick to sell when things start to go the wrong way. This comes down to not letting emotion into your investment decisions. Investing with emotion usually leads to large losses. This is because people tend to buy when the market is high and sell when it starts to drop. Stopping the urge to pull out of your investments takes a great deal, but it can be a major benefactor to a growing portfolio.
PROTECTING YOURSELF IN A STOCK MARKET CRASH
The key step to protecting your investment in a stock-market crash is to be able to ride it out. The money you invested prior to the crash should be kept invested until the markets recover. To stop yourself from pulling out of your investments you’ll need to make sure that you have an emergency fund.
An emergency fund is a savings account that will last you 6-12 months. This will help you pay for daily living expenses. Techniques like this work for younger investors who don’t need the money right away.
BUY WHEN BAD NEWS HITS THE COMPANY
Most times stocks cop a huge hit due to some poor results in an announcement. Most of the time they recover once the market sees that the company is still growing. In these times you can make some serious profits. Be sure to keep an eye out for these opportunities as they present themselves.
But, be careful that the whole sector isn’t experiencing structural decline as that will continue to affect the share price in a bad way. Be sure that the company has great long-term potential.
THE BIGGEST MISTAKES YOU’RE MAKING WITH YOUR INVESTMENTS!
Most people don’t have the time to do their own research so they look for financial advisors. When researching this, know the fees you’re paying and make sure you understand every one of them.
On the other hand, if you wanted to do your own investing, you could save thousands when it comes to choosing the right broker. I will list a few brokerage websites that give the cheapest deals for trading. I am not getting paid for the advertisement, these are the best deals I could find and what I use for myself.
Commsec – $600 of free brokerage (valid for 3 months)
CMC Markets – $11 per trade (Decreases the more you trade)
DO NOT BORROW TO INVEST
Yes, borrowing would be good if your shares were up and you’d make more money. However, it can increase your losses greatly. Buying a stock using borrowed money can mean that you don’t have time to wait out any unexpected downturns.
Furthermore, you’re forced to keep a close eye on the stock’s daily movements. If the stock experiences a major downturn and you haven’t caught it in time. Then the brokerage firm will sell your stock to help recover any losses you have accrued.
As an investor who is new or experienced in the stock market. The best thing you can do is build your portfolio for the long term. Have confidence in your investment decisions and in the long run you will experience huge portfolio growth.
If you’re looking to bet your money on gut feelings and rumors (without doing any research). Then you’re better off at the casino because that is basically what you are partaking in (gambling).
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If you have any further questions, please feel free to leave a comment at the bottom or email me at firstname.lastname@example.org
Please note that Getsmartinvesting simply publishes stock recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of Getsmartinvesting.com. You should seek professional advice before making any investment decisions.
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