5 simple rules to follow for investing on the stock market

November 23, 2014

The stock market is where fortunes are sometimes made or lost. If you're a beginner, here are five simple rules to follow if you hope to successfully invest.

5 simple rules to follow for investing on the stock market

Rule #1: Save money

Before investing on the stock exchange, move the money into a savings account.

  • Set up a fund and add a sum of money each month for at least a year.
  • Be prepared to live on a stricter budget to save money.
  • Also, remember to not spend your profits and keep them for future uses, such as emergencies or retirement.

Rule #2: Learn the basics

Take any free time you have and read books about investing on stock exchanges.

  • It is crucial to have at least a basic knowledge about what a stock is and how to evaluate them.
  • You should also have a functional knowledge of how investing works.

Rule #3: Avoid the herd mentality

First-time investors are often influenced by the actions of their relatives or neighbours. Therefore, if everybody invests in a specific stock, the obvious tendency would be to do the same.

  • However, this tactic can easily backfire. Remember that what is successful for one person might not be right for you.

Rule #4: Be disciplined and practice

Have patience and keep a broad, long-term goal in mind when investing on the stock exchange.

  • The volatility of the market has made many investors lose their money.
  • To minimize losses, try trading on paper first. Keep track of every buy and sell decision you make, along with profits and losses.
  • Write down the number of shares, dates, prices, commissions and taxes.
  • In the end, calculate your short or long-term net profits and compare it against a stock market index.

Rule #5: Control your emotions and be realistic

A large number of stock investors have lost money due to the lack of ability to control their emotions, especially greed and fear. The illusion of getting rich overnight can be deceiving.

  • Greed can take over when an investor hears stories about fabulous earnings in a short amount of time.
  • Fear, on the other hand, is the sentiment that appears when the stock market reverses. This is the moment when first-time investors panic and sell all their shares at the lowest price, thus, losing their money.
  • Both greed and fear are the worst emotions to be led by when investing on the stock exchange.

Investing on a stock exchange can be daunting for beginners. To successfully invest large sums of money, the key is to knowing and understanding the market. These five simple rules could help.

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