Disclaimer: This content does not constitute financial advice. The article below is for the readers’ information and education only. The writers at Friendly Finance are not financial advisors and are therefore not authorised to offer financial advice. Friendly Finance recommends our readers to always do their own research and seek independent advice as needed.
As an entrepreneur, your primary goal should be to make money. While you can do this through your business interests, did you know that you can also generate wealth through the stock market?
However, to be effective, you are going to need spare capital, an understanding of how the stock exchange works and a knack for making savvy investment decisions.
Success won’t happen overnight – around 90% of investors fail to make a profit within the first 12 months of investing in stocks and shares. But through strong focus, combined with a positive attitude and rational thinking, it can be a very lucrative way to grow your bank balance over time.
If this is a potential you would like to tap into, here is what you need to know.
Start Making Investments Immediately
You might have heard the adage ‘you’ve got to be in it to win it’. Well, this is particularly true for the stock market.
You can’t make money through stocks and shares if you don’t own any. So, for this reason, instead of trying to time the market or wait for the right opportunity, you should test the waters out as soon as possible.
The good thing about doing this is that it allows you to enjoy the benefit of compound interest via dividend streams. This could then be reinvested to grow your wealth.
A good starting point is to put a small stake in a stock, such as Newmont Corp; to help you decide if it is a good fit for your investment goals. This will enable you to familiarise yourself with the act of investing and how to go about monitoring the progress of a stock.
Invest Regularly
If you are serious about making money on the stock market, it is best to invest regularly.
There are two ways you can do this – either on an ad hoc basis or through a process known as dollar cost averaging.
With the former, you run the risk of investing when the market price is high, although on the flip side, should you time it right, you could well purchase stocks and shares at a much lower price than they have been.
By contrast, dollar-cost averaging is a process whereby you invest regular fixed amounts every week, regardless of market fluctuations.
This helps you to minimise the risk of buying at a price that is too high. By hedging your bets in this way, you can potentially benefit from a lower average investment cost overtime.
By building up a nest egg of investments it can allow you to retire earlier. This is the concept of FIRE (financial independence, retire early). But, it works best if you start early and invest consistently to get long-term returns.
Make Sure You Diversify
When it comes to speculating on the stock market, it is a good idea to diversify your investments. The last thing you want to do is put all your money on one option, only to see it capitulate in front of you.
There are more than 2,200 securities currently listed on the ASX across 77 industries. Not to forget tens of thousands more on the London, New York and Asian Stock Exchanges.
Therefore, you should take the time to research companies within sectors such as Real Estate, IT, Energy and Communications to increase your chances of success.
Learn How to Spot Opportunities
When it comes to speculating on the stock market, half the battle comes from recognising which securities will maximise your returns. As a result, it pays to learn how to recognise stocks that have the potential to perform well and strike while the iron is hot.
The way to do this is through fundamental and technical analysis. Fundamental analysis involves studying factors such as competitive advantages, market position, future growth prospects and management team to ascertain the profitability and economic indicators of a company.
Conversely, technical analysis is guided wholly by movements on the stock chart and the data that derives from it.
By sharpening your analytical skills in both these aspects, you will give yourself a much better chance of finding equities that have the biggest profit potential.
Put a Stop Loss in Place
Probably the worst thing that can happen to your investments on the stock exchange is having their value fall significantly during a huge sell-off. To prevent this from happening to you, it is important to put a stop loss in place.
A stop-loss order is an instruction put in place with a broker to sell or buy any given stock once it hits a certain price. Essentially, this instruction is designed to minimise your losses should the bottom of the market fall out.
Typically, 10% is the norm, though you should put in place whatever figure you are comfortable with.
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