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We get it, investing can seem like a daunting, risk-prone pursuit for someone looking to expand their wealth beyond their savings account. However, with the right information you can harness the full earning power of stocks with very little know-how on the subject. Investing in the stock market should be about the long game- a slow and steady race. There are many beginner investing mistakes people make with their investments in the stock market that cause them to lose money. Avoid the 3 mistakes below and you should be one step closer to growing your wealth through stock market investing.
Beginner Investing Mistake #1: Picking individual stocks.
Picking individual stocks is a strategy a lot of people use. It can be effective if you do a lot of research on companies and the stock market in general…. Just as easily though it can be completely ineffective. And that is why it is not recommended to pick individual stocks. Some people will hit it big and others will lose it all. Keep in mind you are competing with people that pick stocks for a living, and still barely keep up with the general market.
For those of us that want to sit our money and let it grow over time as it has done for the past 30+ years, low cost index funds like Vanguard VTSAX can be a good choice. By choosing a low cost index fund, with a fee of less than 0.10%, you get the benefit of getting in the game with a very low fee to do so. Some people will put their money in a mutual fund where they pay a company as high as 1 to 2.5% to manage their money. So not only does that mutual fund have to beat the market, it has to beat the market by 1 to 2.5% for you to keep up with the general market.
For consistent gains over time and low fees, choose a low-cost index fund or robo-advisor, like Wealthfront.
Beginner Investing Mistake #2: Trying to time the market.
This is one of the most common beginner investing mistakes- unless you are a prophet or a time traveler from the future. You will never be able to perfectly time the ups and downs of the stock market. The good news is if you commit to investing your money on a timely schedule, the law of dollar-cost averaging will take care of this for you.
Law of dollar-cost averaging: the strategy of investing your money at regular intervals to average out the purchase price over time and avoid the high-highs and low-lows.
When you couple the law of dollar-cost averaging with investing in low cost index funds, you will buy at both high and low peaks, but over time as the overall stock market increases so will the value of your investment portfolio.
Time is on your side when it comes to investing. So as soon as you are ready to begin… start! Do not worry if the market is at a high or a low, just begin and your wealth will follow.
Beginner Investing Mistake #3: Not being patient.
For a long-term strategy of building wealth in the general stock market you must be patient. There will be times when the stock market falls, like it did in 2000 with the collapse of the technology bubble and in 2007 when the housing bubble popped. And while for each crash there is a period of rebounding where it may take months or years for the stock market to regain its previous standing, there is also continued growth after it.
If you pull your money from a general fund as soon as the market crashes, you have instantly realized that loss, and you will not make that money back. If you hold on to your investments and keep buying, not only should you make your money back but you will also reap the rewards of buying general stock on sale during the crash. Keep in mind this applies more to index fund and general stock market investments- if you are invested in an individual company then you are at the mercy of that company bouncing back. Be patient, there will be highs and lows, but over time the reward of patience should pay out in the long run.