The stock market remains the destination of some of the world’s most frugal investors. While there are sorry stories of people losing money or not making any reasonable profit from investing in the market, it returns a cool 20% annually to investors, which is better than what a typical bank account or bond will give you. Why then, do many fail to get this decent return? Truth is – they don’t stay invested.
Become a Serious Investor – Stay Invested
If you want to make money from the stock market, you have to think better than the average person, who sees it as a market for buying and selling stocks. You need to see it as a reliable investment platform where you have to stay committed and watch your investment grow with time.
Profits from some of the best performing companies grow with time, and these extra earnings generally translate to higher stock prices. In turn, this will result in a return to the investors who own the stock.
The very first important step to take is to open a brokerage account. This is a straightforward process that shouldn’t take up more than 20 minutes. After setting up your account, the next important thing is to make up your mind to stay invested. Discard the idea of trading daily, weekly, or monthly.
By simply staying more days as an active investor, your chances of owning the stock at the critical points of performance are enhanced. Results that have been recorded over a period of 15 years show that missing the few critical periods in the market can significantly cut down your potential earnings. Missing ten critical days can make your annual return to drop by up to 5%, and missing up to 30 best days will see you losing part of your investment (-0.4% annually).
It is also very important that you find a good broker to work with. Take your time to search for the best stock brokers and choosethe most reputable one.
The pitfalls to avoid when investing in the stock market
Trying to trade frequently on the stock market is one of the major reasons people don’t earn money from their investments. Staying invested, on the other hand, can guarantee that you will earn more.
There are more pitfalls you must avoid to make money on the market. These pitfalls are created by doubts and manifest as excuses. The following excuses can keep you from making money from the stock market:
I Have To Wait Until the Market Is Safe To Invest
Many newbies are afraid to invest when stocks are on the decline. They fear that it will get even worse and will use the excuse of waiting for safety to stay out of the action. The truth is that there is no safe period to invest. Myopic loss aversion will make you lose out when you can get the right stock cheap.
I’ll Buy Back Next Week When It Is Lower
This is another costly excuse used by would-be buyers when they want stocks to drop before buying. It is not a logical excuse, since no one really knows how stocks will move on any given day. It may rise or fall next week, so you might as well make the investment when you have the opportunity.
This Stock Is Boring; I Have To Sell and Move On
The stock market doesn’t work like a casino. Yes, the actions may seem too dull for a rookie investor, but pulling out because things seem to be moving slowly is the wrong move. Sitting on a boring stock for years can yield significant returns that will surprise you.
Final Thoughts – Index Funds or Individual Stocks
If you are truly interested in making money in stocks, you have to learn to stay invested. You may also need to make the decision between investing in index funds or individual stocks. Your best bet are index funds that contain dozens or even hundreds of stable stocks. While individual stocks have the potential to yield higher returns, they require lots of stress in identifying the high-performance options. If you want to invest and relax, index funds are the right options for you. Again, you need the discipline to stay invested in order to get reasonable and good earnings in the long run.