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Have you seen the stock market these days? There are seasoned investors, like Warren Buffet, that sat on the sidelines in the craziness of the pandemic market.
Let’s rewind back to February/March 2020 (a different time), when the pandemic was just starting up in North America.
The instinct from my finance education kicked in, telling me not to invest in the stock market. There had been a crazy bull run at the end of 2019, and the market HAD to go down to correct. And that was before the fears of coronavirus really stepped in.
But in the months since then, there have been solid days of higher highs in the stock market, fears of an impending recession, high unemployment rate, an upcoming US Election, and oh yeah, we’re still living through a pandemic. Did I miss anything?
The macroeconomic factors alone make me question my stock market investments. The stock market had already seen a run up, and maybe sitting on more cash was what I should be doing. Just like Warren Buffet.
Of course, in the months since, a lot changed. There has only been an upward momentum in the stock market (if you owned the right stocks from a small selection of the market).
There has been a lot of government intervention, resulting in lots of money printed, and a fear of inflation. Of course, we haven’t even started about the recession that will follow, the current unemployment numbers, and an impending housing crisis.
Despite all the reasons not to invest, the emotional human in me, has started to feel like she’s missing out (classic FOMO) on all the potential gains.
Yeah, okay, I probably would have never known that the stock market could maintain momentum in the middle of a health crisis. I see why many do consider stock market as a form of gambling.
I guess on some level it is. At the end of the day, you do risk your capital to earn a return. But that’s just how any business operates!
The challenge is to create the odds of success in your favor, by making informed decisions. Becoming a more confident investor will help increase the chances of good investing decisions.
It is possible to create an investing plan that allows you to start investing, building wealth, and be confident about your investing decisions. (psst, notice I said investing, not trading?).
So how exactly does one make it through this economic crisis, and continue to stay confident in their hard earned money staying in the stock market? Here are my top 9 tips to become a more confident investor while managing your money!
9 Tips to Become a Confident Investor
Start Small
If you are planning on investing, especially if you are looking to invest in specific stocks (rather than index funds and ETFs), don’t put all of your savings in investing.
Keep aside an emergency fund. Make sure that you have a healthy cash flow to meet your living expenses and obligations.
Then, decide how much of your capital you are willing to part with – because you will make some mistakes.
Start with a little, maybe even as little as $100, to get comfortable with investing. This will build your skills and make you a more confident investor.
Decide on your Risk Tolerance
These days there is a lot of volatility and swings in the market. It is definitely easy to get caught up in FOMO on the upside, or start to panic sell when your investment is going against you.
Try to be rational about what you want to buy and sell.
If you’ve done your research, and are holding onto a stock that has a strong, unchanged business strategy, then there’s no reason you should be looking to sell just because it dipped a little.
But you do need to decide on how risky or conservative your portfolio should be. Decide on what percentage of your portfolio need to be in growth or value stocks? Do you prefer stock with stable cash flows like dividend stocks?
Educate Yourself: Ask for help / Read lots
If you are looking to start investing, just start reading. There are lots of good books, blogs, and of course the news, to get your feet wet, and get a better understanding of the stock market, its inner workings and how it is affected by the broader economy.
If any of the words related to the stock market or investing scare you, look them up. I love using Investopedia to look up basic (and advanced) terms related to the stock market. As your read more, you’ll become a more confident investor.
Don’t just trust one source
The stock market is a marketplace of buyers and sellers. The reason there are movements in price is because the buyers and sellers see value in the respective stocks at different price points.
Therefore, you shouldn’t just rely on one person’s opinions. There is nothing wrong with trying to get investing ideas from your friends and family, Facebook groups, analyst opinions, Twitter or other forums. It can help broaden your view of the market, and help you see patterns. But buying a stock because that one friend told you to, is not a great investing plan!
Start with what you know
When you invest in the stock market you are essentially owning a piece of the business. The stock market is filled with lots of different businesses. You probably know a little (or a lot) about a few industries. Start by looking at those companies.
You can also get market wide exposures through ETFs like SPY – which invest in the companies that are part of the S&P 500.
I would suggest to start with playing to your strengths. Your knowledge will help you be more confident in your investing decisions.
For example, I almost never invest in healthcare space because it is not something I have a background in, nor do I have an interest in learning more about the inner workings of that industry.
If I did want exposure to the healthcare industry, I would look to a good ETF or index fund to try to invest in the healthcare space. I would still do my own due diligence on this, but my dollars would probably be better managed by a professional than myself in that space.
Keep your emotions in check
If you do invest in specific stocks or sector specific funds, you might be more active in checking the status of those stocks – whether that’s daily, monthly or quarterly.
When prices are volatile, and move constantly, we might feel the need to make moves, buy more, sell a little.
Be aware of what emotional factors are driving your stock buys and sells. Is it purely emotional? Would you be able to give someone else a logical reason for your decision? As you become more self-aware of your decisions, you will become a more confident investor.
Diversify
Don’t put all your eggs in one basket. It’s not just a cliche. It’s an important piece of advice, especially when it comes to investing.
That is why ETFs, and index funds are a popular way to invest. You get bits of exposure to lots of different businesses.
It is important to make sure that your wealth is in the best position to continue to grow.
Create a plan
If you want to get serious about investing, you need to have a plan. How much of your income are you looking to invest, how often, in what sectors? These are all questions that will drive your investing decisions.
Your plan should also address your risk tolerance.
If you start to actually write out your plan you will feel like there is more to investing than gambling away your hard earned money.
This place will also increase your confidence in your ability to invest!
Just start
This is probably the most important step. Now, not everyone might be at a stage where they can start investing. Read this article about the questions you might want to start asking before you plunge into the world of investing!
Once you know that it is the right move for you, DO NOT PUT IT OFF. The earlier you start investing, the better you will fare in the long term!
Cheers,
