Stocks: 5 Things to Know and to Avoid

The stock market has traditionally been one of the best ways for people to build wealth over time. Over the past couple of decades, the stock market has been one of the best asset classes for people to invest in. However, many people do not have much background knowledge on investing in stock. Here are several things to know about stocks in general.

Stocks are Volatile

Stocks are volatile by nature and there are times when the market is simply not rationale. It is important to be able to stomach short term dips for long term gains. Many people try and time the market to buy low and sell high. Although this sounds good on paper, few people actually execute their trades this way. If you are going to be investing in stocks, make sure you can stomach some volatility.

Buy Long Term

Stocks are generally a great investment over the long term. For over 100 years, stock have average an annualized return of around ten percent. There are years when it is much higher or lower, but over the long term stocks are a great way to build wealth. This should be a reminder to anyone that is experiencing short term pain in the market. If you can hold on during short term dips, you will win with your investments in the stock market.

Diversify

One of the keys to achieving a high rate of return over time is to diversify investments. There are many people that just have one or two stocks that they own. Although this is great when things are going up, it can be terrible for your portfolio when the market goes down. Buying index or mutual funds can help to spread out the risk of the market going down quickly.

Watch The Fees

There are many companies that are willing to manage the finances of their clients in the stock market. The idea is that professional money managers can do better in the long run than an average person. However, the fees for their services can be quite high and eat in to the returns that they receive. Watch out for fees if you are using a professional money manager.

Always Be Learning

The stock market is a complex world that involves both human behavior and complex math formulas. With all of the information out there today, there is no reason that investors should not be informed. There are hundreds of great websites dedicated to helping people learn more about the stock market. There are also a lot of podcasts on the subject if you are someone that would rather listen than read.