Investing can make you a lot of money, but you’ll need to be careful as someone just starting out in the stock market. The promised land of gold and jewels is often a pipe dream sold to the uninitiated. If you want to be smart and careful with your cash, here are five tips for first-time investors.
1. Know the Lingo
Do you know the difference between EPS, OTC and NASD? Do you understand what people mean when they refer to market capitalization? If these terms are unfamiliar to you, it’s time to do your homework. Read books on investing; look through financial glossaries; plug new phrases into search engines. You can’t succeed in an industry where you don’t speak the language.
2. Think About Tax Incentives
Some investments come with tax incentives that might tempt you to plant your flag in an industry you’ve never considered before. For example, oil and gas drilling tax incentives are very lucrative, and they might be worth the research even if you’d never planned to go into oil.
3. Listen to Advice
Don’t be the pretentious investor who thinks they know everything because they read one book about the stock market. Not only will you annoy contacts and colleagues who might have otherwise invested with you, but you’ll also miss out on valuable tips, tricks and techniques shared by people with more experience than you.
4. Don’t Diversify
Diversifying your portfolio can be a valuable endeavor, but you’ll need some experience under your belt before you attempt it. First-time investors should stick to one or two areas of interest where they can learn the ropes. There will be plenty of time for diversifying once you’re making money with multiple investments, so don’t rush it.
5. Form an Investment Club
Investment clubs are perfect for first-timers who are nervous about parting with their hard-earned money. Instead of investing a large amount of funds by yourself, you’ll invest a small amount with a group of like-minded individuals, and you’ll share successes and failures as a club. Just make sure that the group is comprised of people that you trust with financial matters.
These are just a few things to think about as a newbie to the world of investments. They can be profitable waters, but it’s best to dip your toe in them rather than belly-floping into the deep end. Good luck!