Online Stock Market Investing, or How To Lose Your Money Fast

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Money..... Money..... Money!


I don't want to imply that investing in the stock market is a bad thing. It can be a really good thing if you know what you're doing.

Now, I'm not a professional trader by any means and I've lost money in the stock market. I do however, manage a fairly hefty IRA that's my wife has had for about 15 years and an online trading account in my S. Corporation. They're both doing well because I'm following some investing rules I've learned over the years.

If you do currently, or plan to invest online at some point, these simple rules will help insure you don't lose your shirt and maybe even make you enough money to buy a whole wardrobe.

  • Don't invest in risky investments that have the potential to make you a fortune or lose you a fortune depending on the whims of the stock with money you can' afford to lose. If you have some money burning a hole in your pocket nothing says you can't give it a shot. Just don't be disappointed if you lose some or all of it.
  • Find a reputable discount brokerage company that doesn't charge an arm and a leg for trades. You should be able to make a trade for under $10 or less with a discount broker.
  • Don't base your trades solely on tips from friends or family members, they're usually wrong.
  • Do invest some money on reputable financial information. The old adage, it takes money to make money is pretty much true. Even in our affiliate marketing business it's almost impossible to go without spending some money on essential information, software or other items that give you the information you need to be successful.
  • Keep some money in your brokerage account in cash. Once you become educated and more comfortable buying stocks it's always good to have some cash in your account to take advantage of a stock that has potential to increase in value.
  • Never become attached to a stock. They all go down sooner or later. My policy is to sell any stock that drops 25% over the price I bought it at or the highest price it reached if it increased in price. I also never invest more than 4% of my entire portfolio in any one stock. That way, if one or more of my stocks drop by 25% my overall loss is tolerable. As a stock rises I raise the stop loss number to 25% below that amount. As a stock continues to increase over time, even if it drops 25% below the high point you will still see a profit. It's better to sell for a small profit than lose money because you waited too long.
  • Take advantage of compounding. A proven way to Invest for the long term is to purchase stock in companies that pay dividends and that have increased that dividend every year for at least 10 years. These are usually larger companies with very stable balance sheets. Be sure to re-invest the dividends into more shares of the stock and start as soon as you can with whatever amount you can afford, even if it's $10 a month. An IRA or 401k retirement plan is the best vehicle for long term investing in my opinion. Then leave them alone until you're ready to retire. Even when the stock market goes down youre buying more and more shares with the dividends and compounding the value of the stock. Eventually all markets and all stocks of stable companies go back up.

Last of all. Nobody knows when the stock market is going to go up or down. If you find a financial adviser or financial news letter that tells you they do, run away as fast as you can. Besides, it doesn't really matter what the market as a whole is doing. What matters is what your individual investments are doing. Individual stocks can go up in a down market and down in an up market. They key is to make decisions based on sound economics and good information.

That's my non-professional, personal opinion about online stock market investing. You can wake up now!

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Recent Comments

17

Great information, thank you for sharing. :)

Thanks for sharing. You do know a lot about stocks! :)

For a non professional personal opinion this information is still very helpful for the less knowledgeable when it comes to Stock Market information.

I've studied investing for awhile and also subscribe to some paid investment research services because I don't want to depend on someone else controlling my financial situation.

you learned quite a lot for not knowing that much all the best

That is all excellent advice,Thom. Before I became an analyst for the government, I sold mutual funds. They're nicely diversified but also come in a nice range from risky to conservative. I always talked to the people I was selling to to see what their tolerance level was. I told them if they bought something that caused them to lose sleep at night, it wasn't worth it. I'd lead them to something more conservative. Yet some people thrive on the thrill. Not me. I agree with you. Nice blog. ~Debbi

Lots of training, analysis and serenity are necessary to achieve success with the stock market. Excellent blog, Thom.
Hilda

Thank you for this advice! Christa :)

I read an article the other day talking about the shake-up that is coming to the managed funds industry. The thrust of this article was that the days of fees being charges at 1% of invested funds are coming to a close as the investment returns don't justify such a drag on a portfolio So if anyone has a large portfolio out the; you should challenge the % based approach as they have no risk at all, so why are they getting such a large percentage of the return on the portfolio?

Good question! Most Mutual Funds don't do all that well anyway. Only the very best managed ones do and they are few and far between. I have 32 stocks in my portfolio so I kind of have my own mutual fund without the fees. Thanks for your your comment.

I am curious how you selected the stocks for your portfolio? Do you have them spread across sectors?

Most of them are recommendations from a financial research and newsletter company that I use. Their recommendations are based on a specific set of criteria one of which is they have to pay a dividend and also have a history of increasing that dividend every year for at least the last ten years. Since there are quite a few stocks in the portfolio they are well diversified across different industries and a few are international companies.

Looks like good advice, Thom. We've never been in a position to do that. One of my students was from a very wealthy family and he used to tell me not to bother unless I had $100,000 or so to lose. He was doing it from the time he was 12. Hey, I'm a firm believer in whatever works!

Sounds like he was a speculative trader. Even $5000 put into 4 or 5 good dividend stocks over time has a good chance of doubling your money every 5 years or so. At worse it would keep up with inflation. Also, it's possible to turn a few hundred dollars into a few thousand if you're willing to risk losing it. It's sort of like gambling. Put $100 in a $5 slot machine and you might win the $10,000 jack pot on the first spin, or lose it all. Most people invest by wishing and hoping. The successful ones make sound decisions based on good information.



Now THAT sounds like a plan! I understand the slot machine analogy as I worked in the casino industry for a long time.

Very helpful and sound advise. Currently I only have a 401k account with my employer but some day I would like to take a more on hands apprroach with the market.

There's not much you can do with an employers account except maybe choose between a few mutual fund families. One suggestion for people with some money they can afford to play with a little bit, a couple of hundred to a couple of thousand dollars is to just set up an account with a discount broker and experiment a little. Not appropriate for everybody but it's a good way to learn and maybe even increase your wealth a little in the process. Thanks for reading the blog.

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