March 5th, 2021 | Updated on December 8th, 2021
Ever since the GME and AMC hype that caught international news headlines, people have started to pay more attention to stock market investing. After all, who doesn’t want an explosive 800%+ return on their investment? But blindly going into it without having the right tools can end badly, with the last wave of GME and AMC traders serving as a case in point. Follow this comprehensive guide to investing in the stock market this 2021:
Set A Budget
Stock market investing is a serious financial commitment that may require you to hold your positions for months or even years before they turn a profit.
If you put in $1,000 of your money that is supposed to pay for your next month’s rent, you’ll likely make poor investment decisions in the hopes of getting back the $1,000 and any profits you can grab quickly.
Unfortunately, this often leads to over-trading and assuming excessively leveraged positions, which eventually end in losses.
While investment brokers do offer accounts with minimum initial deposit requirements of $100 or less, some may have capital requirements of $1,000 or more.
Learn The Different Types Of Stock You Can Invest In
Stocks are divided into a number of subcategories – industry i.e. technology and healthcare, dividend payouts i.e. income and growth stocks, risk profile i.e. blue-chip and beta stocks, price trend i.e. cyclical and defensive stocks, ownership rules i.e. preferred and hybrid stocks, and market capitalization, i.e. small-cap and mid-cap stocks.
Some stocks can be placed in more than one of these categories. It’s good to have a broad knowledge of each sector or subcategory, but it’s also ideal to specialize in one or two types of stock investing.
In fact, a lot of highly successful investors, including Warren Buffett, limit their positions to stocks in one or two industries and/or market caps.
Open A Broker Account
To officially start investing in the stock market, you’ll need an investment broker account, also referred to as a trading account. This is where you’ll place your orders to buy shares of XYZ or short stocks of ABC.
When comparison shopping for a broker account, you’ll want to narrow down your options based on what asset class you want to invest in, which in this case is individual stocks.
You’ll also want to consider minimum initial deposit requirements, commission fees, access to customer support, available educational resources, and platform features.
Zero In On An Investment Strategy
Luckily, you don’t have to create a new strategy from scratch. Regardless of what tool or parameter you plan to use, whether it be moving averages on a price chart or the company’s P/E ratio, you can find at least one strategy that employs those data points as parameters for producing investment entry/exit signals.
As a general rule of thumb, keep your approach simple. Contrary to popular belief, the chances of investing success do not commensurately increase the more complex your strategy is.
And lastly, back- and forward-test your chosen investment system. This will help you identify theoretical or technical issues and continuously optimize your system for the best results.
It can also give you a better sense of how your chosen system performs in real-world market scenarios, whether it’s a bullish, bearish, or choppy market.
Know What Trends To Follow
This 2021, the mix of recent global catastrophes and new macro and socioeconomic developments are bringing to light the importance of relatively nascent industries, such as renewable energy and electric vehicles, to the future of humanity.
Because these industries have yet to actually claim the limelight, the companies under them are still relatively cheap when contrasted with the company’s potential future value, which means finding the right stable companies and buying into them early can be a smart long-term position to take.
Use Technology To Your Advantage
The modern-day investor has a plethora of technologies and tools under their fingertips. From analysis tools that check your portfolio’s risk profile and lets you run simulations to expose weaknesses to broker comparison platforms that allow you to easily comb through dozens of trading brokers and pick the best one that fits your needs, these financial products and services are a boon to stock market investing for beginners and seasoned investors alike.
Use these tips to help you safely navigate the stock market this 2021. Ultimately, investing success can be boiled down to finding the right system and enforcing proper risk management rules to minimize financial losses while scanning for and capturing profitable opportunities as they show up on your radar.
