Tips and Tricks for Investing in the Stock Market

Investing in the stock market is the closest thing to going on a rollercoaster without actually doing it. Investing in stocks means that you are buying a minuscule share in a company, with the belief that it has the potential to grow and increase its stock value. The stock can either go up or down based on the company’s overall performance, along with external factors. If your stock goes up you could sell it to other potential investors for a profit. The goal of all investing is to be able to make a return on your original investment.

One of the ways by which investors select stocks is by choosing industries that are on the rise.  Personally, my favorite industry to invest in is the tech industry, because there is so much potential in that field as there is still so much yet to be discovered.  It is important not to pick just one industry, and a good rule of thumb for a majority of investors is to diversify your portfolio. For example, you may want to invest in a few stocks in the tech sector, but so you don’t put all your eggs in one basket, so this means you should put some money into the healthcare sector, the real estate sector, and energy sector to give you a better chance at making money, should one sector not perform. Let’s just say one industry specifically has a bad couple of weeks due to supply issues. You won’t lose tons of money because you have other stocks in other sectors to help balance out that loss. 

Another thing to note is that the stock market is one of the most delicate things you’ll ever come in contact with. Small things that you might think may have no effect on anything can cause massive economic stress and big things can do the same. Some of these issues that investors have been facing and trying to navigate over the past year or so are the concerns about skyrocketing inflation, the COVID-19 Pandemic, and Russia’s invasion of Ukraine. The most important lesson to keep in mind while investing in the stock market is not to panic when something goes wrong in the world. Bad things happen on a daily basis. Some are good and will increase the value of your stock and some are bad which will drive the value of your stock down. Through all of the stress and despite what everyone tells you to do, you must stay calm and hold your stock. 

The next tip is how to make a well-balanced portfolio between stocks you're taking a healthy risk on and stocks that are more reliable. You don’t want to take risks on penny stocks, because it’s a very shady business due to the lack of regulatory oversight and low liquidity. When I say healthy risk, I mean taking a risk on a company that has potential, that you’ve researched, and that is typically five dollars or above. Having a balanced portfolio is a very important thing to understand when investing in the stock market. In a hypothetical scenario, I’m going to invest in five stocks in total. I’m going to invest in three safe stocks: Southern Company, Amazon, and Coca-Cola. Then, after I know that I have three safe stocks, then I should pick one or two stocks that could be considered healthy risks: STMicroelectronics and Catalyst Pharmaceuticals. This would be a good example of a properly balanced portfolio. When you are an investor, you have to be good at predicting the future and looking ahead, and also you have to be good at planning for the worst-case scenario. That’s what a balanced portfolio will help you manage.

The last tip is about stock dividends. A dividend is a certain amount of money that is usually paid quarterly by a company that you have invested in. It's critical to know that not all companies pay out dividends. It’s very expensive for a company to do, but certain companies offer it to make their stock more enticing. Having the ability to identify stocks that will grow over a five-ten-year period and that provide medium to high dividends is key to success in the stock market. Most of the time you’ll see stocks that offer dividends tend to be more safe stocks in areas like utilities, telecommunications, and energy. An example of a dividend stock is Southern Company.  Southern Company’s quarterly dividend is 0.66 cents per share. It may not sound like a lot if you have one share, but as you grow your portfolio and start making more money you can eventually afford 200 shares (for example) and that would mean you’re bringing in $132 per quarter in dividend income. The reason dividend stocks are very important is that if we are in a bad economy or if you're just going through a bad phase where you’re not earning a lot, this is a consistent source of money that is coming regardless of how the stock is doing. 

I hope that this article provided you with some helpful tips on investing and you keep this in mind for your future stock portfolios. 

*It’s illegal to invest in the stock market under the age of 18 years of age

By Avner Belsky