While the pandemic put the squeeze on many industries, small businesses and livelihoods, the share market seemed to defy the odds.
And it hasn’t gone unnoticed by newcomers to the trade table as more and more people have been drawn into investing in shares.
But like always, there are no shortage of pitfalls to beware of, particularly for the rookie investor.
Despite the potential for long-term growth, market volatility remains high and many have only managed to multiply their losses.
That’s why arming yourself with quality advice is paramount to build wealth and achieve long term financial success.
Don’t just throw your hard-earned cash at a mate’s flimsy recommendation. Make sure you have a strategy and stick to it, and you’re investing for the long haul.
Playing the long game
As long you have a solid plan and time is on your side, you should be on the pathway to share investment success. But how long is long enough?
Here are some solid basic rules that will help keep you in the black.
You can’t predict the weather – or the share market – Everyone knows someone who’s had a hot tip. Very occasionally, they’re right. Usually, they’re wrong. Just look at 2020, the first year of the pandemic. Doom and gloom abounded and yet the market soared! You are better off to react to real world events than trying to predict the future.
The 80/20 rule – The reality is, 80% of a portfolio’s wealth is made in just 20% of the time. That means there will be long periods of little growth and short periods of excessive growth. It’s almost impossible to predict when the peaks will come but being ever vigilant improves your chances.
Chart your progress – Charts are useful to give a clearer picture of how your stocks are performing and trending.
The play book – There is no absolute right or wrong. Some people have success following trends and momentum. Others prefer safer bets. The time you have on your hands plays a key role in what works best for you.
Be prepared – Don’t just buy a stock and forget about it. Be prepared to buy or sell smaller parcels when needed, depending on your strategy.
Easy money – There’s no such thing! Being a great share investor takes time and effort. And you can’t win them all. If you’re serious about making good money, you have to put in the work.
Playing the short game – day trading
Day trading takes quite a bit more time, effort, and risk. It is definitely not for the faint-hearted.
It involves buying and selling stocks on the same day, sometimes multiple times. And you’re up against professionals who do it every day for their living.
You’ll need to be very well researched and find a broker prepared to facilitate day trading.
And you’ll need to clear your calendar because this strategy is a full-time job!
If you want to explore day trading, firstly talk to your financial adviser and accountant and get advice about whether you’re in the financial position, and have the right temperament, for day trading. If you still want to give it a go, here are a few tips on how to become a successful day-trader:
Do your homework – Be well read on the latest stock and business news, world events, interest rates and anything else that might influence the market. Your success depends upon it.
Prepare your stake – Know how much you are prepared to risk on every move – this helps protects you against big losses. Like most investments, never put anything on the table that you can’t afford to lose.
Gently, gently – Don’t overwhelm yourself early on. Focus on no more than two stocks during any one session.
Penny stocks – For every one win, there will be thousands of losses. Steer clear of them.
Avoid the rush – Markets can be particularly volatile in the 20 minutes at the start and end of each day. Unless you’re an expert, stay out of the rush.
Limit orders – They can help you avoid big losses by allowing you to nominate the price of a trade , without guaranteeing its execution.
Be a realist – You can’t win them all. But if you can win more than 50% of your trades and enjoy bigger wins than the losses, you are well on the road to success.
Keep calm – Make your decisions based on logic, not emotion.
Get advice today
If you’re a newbie to the share market, or want to level up your investment game, you need to know what you’re doing or it could cost you big time!
Professional advice, and getting the right strategy, is the best investment you can make.
Contact us today to discuss all of your professional needs including how to make the stock market work for you.
The information contained on this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation.
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