Is Investing in the Stock Market Really That Easy?
Last month I wrote about how to invest in stocks hoping and planning to turn it into a little mini- series on investing in the stock market. What can I say – summer has taken hold and I sort of got away from that plan. “No more!” I say.
As I’ve shared before in my stock broker confessional, working in the online brokerage industry has afforded me the pleasure of encountering every kind of investor out there. I got to see those just starting out to those who had been day trading for years. One of the overarching things I saw was how difficult many investors make investing in the stock market when it really does not have to be. Not to say that it’s simple, but if you do really take investing in the stock market seriously it can be brought down to a level that will be easier than most can imagine.
With Knowledge Comes Power
As I wrote last month, when you’re looking to invest in the stock market, so much of it comes down to knowledge. As the saying goes, with knowledge comes power and that could not be more true than in relation to investing in the stock market. The great thing is that there is a wealth of information available and most of it is free or very cheap. The key to getting that knowledge is finding what works for you and running with it.
I have written several posts that cover some of the basics and there is a ton of information online that can be incredibly useful. Beyond that, I would also recommend A Random Walk Down Wall Street which is considered one of the pinnacles to begin a journey of investing in stocks. You will generally find that with increased knowledge you will become more comfortable with being in the stock market and more confident in your decision making. You will also find that while there is a lot of information on investing in the stock market available you too will find that there is a lot of “noise.” When I say noise I mean talking heads on CNBC and the like that will convince you that the stock market is doing one thing or another. Do your best to block that out and do what’s best for your portfolio and you’ll do yourself a big favor.
Know What You’re Comfortable With
Now that you’ve armed yourself with some knowledge and are feeling comfortable with the next steps you’ll want to determine what your risk profile or, better yet, your risk tolerance is. Essentially, you need to determine what will help you sleep at night. This is different for everyone and there are some investment tools to help you determine this. Do yourself a favor and take ten minutes to determine where you’re at in regards to risk tolerance. Personally speaking, I have a more aggressive view towards my investments and am willing to take on quite a bit of risk, but if you’re more conservative then my portfolio will be the last thing you want.
If you’re unsure about what your risk tolerance might be then a great place to start is to determine what your investing goals are. That can help you narrow down what time frame you’re looking at and help you look at what type of asset allocation you’ll want to have. For example, if you’re five years from retirement then you may find that you do not want to be concentrated heavily in growth stocks, but looking at a more diverse mix of dividend paying stocks along with some more conservative investments. This may sound overwhelming at first, but I assure you that with a little due diligence it can be managed quite simply for most.
Investing in Stocks Requires Discipline
One of the key mistakes I saw day in and day out with many investors was that they lacked discipline and had an unwillingness to develop one. Investing in the stock market, especially the last number of years, is a very up and down journey. If you allow that to get the best of your emotions then you’re only harming yourself. One of the simplest ways to help grow that discipline is to have an investment plan. This plan does not have to be exhaustive and can be as simple as a small outline of what you’re looking for in a company, mutual fund, etc. to invest in.
Keep in mind that this investment plan will, at times, be a fluid document. While you may always be at some level of retirement planning that’ll change as you get older and earn more income and you’ll have other things that may happen in life that will require changes to your plan. The key to all of this, is knowing what your goals are in relation to investing in the stock market and being disciplined about your investing. Without that discipline, you’ll open yourself up to making foolish decisions that’ll impact your investing and potentially set you back. I know this is easier said than done, but if you act with discipline you’ll make your investing work for you and find it easier to manage.
Investing in the Stock Market Does Not Have to be Difficult
While it may sound a little pie in the sky, I am a firm believer that investing in the stock market does not have to be difficult. Granted, if you’re simply picking stocks and involved in heavy stock trading then investing may be more difficult for you. I saw this every day in my former job and it pained me to see retail investors shoot themselves in the foot simply because they were making it so difficult on themselves. Ultimately, investing in the stock market can be as easy as we want to make it.
I find that focusing on what you can control and not worrying about the rest is a great way to put yourself on the path of investing success. While there are many that do have complex situations that might make investing in stocks more intricate, there are also many that do not face this intricacy. If you find investing in the stock market difficult to the point that it’s holding you back from investing in stocks, find ways to boil it down for yourself and acquire solid educational tools related to the stock market. By following that approach, you can make investing in the stock market a bit easier to manage as well as easier to follow.
Do you find that investing in the stock market is easy or difficult for you? Is there anything you’d like to see covered in this series?