Once you have enrolled in the 401K plan and have started building your emergency fund, you should next start focusing your attention to investing. Investing must be a part of your life, and the sooner you start learning and building your experience, the better investor you will be later in life. As a Twenties Smarties, one of your goals is to find a way to grow your money. Investing in the stock market is one of the primary methods in accomplishing this goal.
Why do most ordinary people end up losing money investing in the stock market? The biggest reason comes from the fact that people tend to believe they can make a quick profit without putting much effort. This kind of thinking, mixed in with volatile emotion, greed, and lack of patience, create losing proposition. So the first step in investing is to build your knowledge in the stock market. I do not recommend immediately opening an online stock brokerage account and start trading without first learning about what you are about to get into. You must be ready to spend time and energy into learning and researching. You cannot place your money in something you are not knowledgeable. So, start building your knowledge on how to become a successful investor and also focus on how you can rebound from failure as an investor as well. Check out this article from CNN Money on “Tips For Investing In Stocks”. Make sure you read all 6 pages. Also, read about an article from Investopedia, “10 Tips For The Successful Long-Term Investor”.
As you continue to learn about the stock market, you will find out the common theme, which is to diversify your portfolio. This is very true and is extremely important to be a successful investor. For beginner investors, I would recommend focusing on the Large Cap stocks instead of Mid or Small Cap stocks and definitely stay away from the penny stocks. With a diverse portfolio in Large Cap stocks, you are decreasing the risk factor, which I believe is important as you start your investing journey. I hate to see anyone, especially someone who just started learning about stock, take too much risk in the stocks hoping to make a big profit quickly and only to realize later that they have lost majority of their invested money.
In addition to diversifying your portfolio with Large Cap stocks, I would like to recommend Twenties Smarties to also consider long-term investment strategy. Generally speaking, those who have long-term mentality and hold onto to decent stocks ends up ahead compare to those who frequently buy and sell stocks. I suggest picking several Large Cap stocks from different industries after doing your homework and hold on to them for many years. Consider strategies like investing initially 50% of your principle leaving remaining 50% in interest earning account for later investment if the stocks you chose present better buying entry prices.
Are you a long-term investor? What investment advice would you give to someone who is a Twenties Smarties?