How to start investing on your own

Hey there, time traveller!
This article was published 27/11/2024 (353 days ago), so information in it may no longer be current.

Dear Money Lady,

I have just started trading in the stock market on my own (I don’t have that much saved yet) and I wondered if you could give me any information about investing as new trader. Do you think I can do this myself, or should I get a bank adviser?

Mike

Sure Mike, I can give you some pointers to get started.

The first thing you should remember is that knowledge is power. The more you know the better. Even if you plan to get a banker to invest for you, it is a good idea to have an idea of what is happening in the market and how it could affect you in the future.

As you get started, be sure you align your personality with your investment strategy. If you’ve got a short attention span, you might not be good at long-term swing trades. If you plan to be a long-haul investor then just follow your strategy with or without your banker, and don’t bother watching the market every day. If you want to be a day-trader, you need to remember that investing is not gambling. You can’t hop in and out of the market like a profit-chasing junkie. The market enjoys eating up inexperienced investors every single day.

To do it yourself, there are plenty of software tools out there that allow you to practise first, Mike. Until you start making money paper-trading, preferably multiple times, you should not consider moving into a live account. You want to make sure your strategies are viable, so practise them first. Of course, it won’t help you with the emotional aspects of trading, so always remember your capital is everything. This goes for your banker, too. Make sure you understand their strategy, rationale, and their investment goals with your money before you hire them to work with you.

Here’s some other things you should know about the stock market.

The three most popular indices for investors to follow are the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite. The S&P monitors the top 500 companies in the US, the Dow covers the top 30 largest and most influential blue-chip companies in the U.S. and the Nasdaq covers all the stock traded on the Nasdaq stock exchange, (usually followed to see how technology stocks are doing). Another index to check out .would be the Wilshire 5000. This is a total market index and includes all publicly traded companies in the U.S. Now, if you’re looking for mid- or small-cap stock picks, you will want to check out the S&P Mid-Cap 400, the Russell Midcap or the Russell 2000. For bonds, you want to check out the 10-year T-note Futures and the 20-year Treasury bond futures.

You may be wondering why you should bother with these indices?

Well, they provide an insight on the economy, give us indicators for new trends and, most of all, they show investor sentiment. They are also used as benchmark indices for some exchange-traded Funds (ETFs) and mutual funds (MFs) you may want to invest in for the long term.

Take it slow. Get some books on investing and you’ll get it.