If you are the beginner learning to invest, the stock market could be very exciting. When the company is doing excellently and its stock will go up and you would certainly make profit. However, on the other hand, if the company does not behave well, as a result, you might lose your investment or sometimes all of it. Here we offer some simple tips helping you prevent from losing money while making the maximum profit you could.
1. Go for diversity.
In order to safeguard your portfolio, one of the best ways we suggest is to diversify the companies you want to invest. That is to say, you should purchase the stocks in five different sectors at least so as to minimize the risk you have to face. When we talk of “sectors”, we mean the different industries where the companies have their operations, like telecommunications, health care, technology, energy, and consumer products. Therefore, you could create your portfolio, in which no more than 20 percent of your investment is intently allocated to any of such sectors; in this way, you could insulate your portfolio from losses when a certain company in a given sector you invest would experience a big loss in its stock price.
2. Be careful of purchasing stocks.
Once you decide to purchase a stock, make sure that you should buy a little bit over a longer period of time. It would help insulate you from purchasing all of the stock at one time, only to see that it takes a great hit in stock price. You may lose money from some upside potential stock if you were a lucky dog to purchase the stock at the bottom, but you would be able to mitigate the risk you should face. So, if you are interested in a stock, you should try to purchase it three times at least. For example, if you are intended to invest $10,000 in certain company and have bought all of the stock at once. If the price of its stock falls by 20 percent, the value of your investment account would be reduced to $8,000. But, when you purchase a third of such stock at the top, a third of it at the line of down 20 percent and another a third of it when the stock is only down 10 percent, the value of your investment account could be only $9,000.
3. Leave some cash at hand.
It is common that when the beginners many dive into the stock market, they all feel that they should be fully invested. However, if you are a wise investor, you should remember to keep some cash on the side. This would enable you to buy a stock you happen to know instead of selling one position for the purchase in a new position. In addition, with cash, you could also add to other positions you have already done in your investment account.
4. Do some homework.
It is quite tempting for potential investors to ride the wave of the well-known companies at present. However, if you ask some people how well that company operates, or what its balance sheet looks like, sometimes they are unable to give positive answers. It is necessary that a wise investor should be clear of every company in his portfolio. Therefore, you need to do some homework to get necessary information about the company, for example listen to the company’s conference call (it takes place once in a quarter every year) or read its balance sheet. Furthermore, a savvy investor should be also aware of something like what new products are developed, and how the company makes its efforts to compete with its peers. The more information you get about such a company, the wiser decision you would make for your future investment.
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