Your guide to playing the stock market
Published in the Your Money Magazine, 2011
Have you always wanted to get into the stock market, but never known where to start? Have you seen your friends and family make money, and wished you could have a piece of the share market pie? Your Money Magazine is here to help with your guide to playing the stock market.
With just a small amount of start-up cash, making some wise stock investments can give your bank balance (and assets portfolio) the boost it needs!
1. Do your homework
Don't let financial terms overwhelm you. It may be scary at first, but learning the industry jargon will help you be a more informed share market player. Log on to any number of online financial dictionaries if you hit a wall. Start reading more business and finance news, and as always, keep checking Your Money Magazine for all the latest advice you need.
2. Go for a test drive
Consider making a theoretical investment before playing with your own cash. Choose the stocks you are interested in and monitor them to see how they perform. Check to see how well they have performed in the past. Decide on a realistic amount you're willing to invest, and decide on a time frame to watch your investment. Ask yourself, what is the level of risk you'd be comfortable if you were using your real money.
3. From little things big things grow
Brokers say you need a minimum of $500 to enter the share market. However at least $2,000 is a safer amount to avoid brokerage fees eating away at the profits. Remember, only ever invest an amount you're prepared to lose. Playing with shares is the more respectable cousin to gambling.
4. Never put all your eggs in one basket
Don't plough all your dough into one investment. The aim is always to diversify your portfolio. This will reduce your overall risk, and at the same time increase your overall return.
5. Investments are often long term
The stock market behaves like a see-saw. Don't panic if your share price dips, this is usually an inevitability. Short-term investing (day-trading) can burn people badly, because the market can be unpredictable. You should establish early on how long you can stay in the market.
6. Know when to call it a day
Acknowledge early on the risk involved in playing the share market, and know how far you are willing to let your shares drop before pulling the plug. This is one of the hardest parts. Decide in advance what your stop-loss price is, and stick to it. You should normally "set it at a percentage below your buy price," Janine Cox, analyst at Wealth Within said. "If it falls below this level, sell."
7. Play with you head not your heart
Forget any emotional ties you may have to a company. Loving a particular company's products doesn't equal a good investment. Don't forget to track the company shares in advance of purchasing your shares.
8. Do it online
You don't have to use a broker, and can save a lot of money by opening an online trading account. When you sign up, most online brokers offer a lot of good information.
9. Make it a hobby
If you're friends are also interested in starting a share portfolio, why not put your heads together. Many people like to start friendly investment clubs, and meet up to discuss their experiences. It can be a great way to stay motivated and pick up some advice.
10. Don't listen to just anyone
Taking advice or backing a tip from a friends' cousins' neighbour is just plain gambling. Always thoroughly investigate tips, and never back something off the cuff.This checklist should be used as a guide only.
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