What are the Do’s and Don’ts of stock market investing?

What are the Do’s and Don’ts of stock market investing?

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If you want to invest, it’s important to know the best practices and what to avoid. Here are 10 Do’s and Don’ts to help you make the most of your investment journey.

 

Do your stock market research
When it comes to investing, research is key, especially if you’re picking your own investments. So, before you buy anything in the stock market, try to spend some time researching countries, sectors, and companies worth investing in. Make sure you read through a set of company results and scrutinise balance sheets. Also, don’t forget to keep an eye on the news and if you need to, consider broadening your knowledge in economics and accounting – you’ll need to know at least the basics to be able to make smart decisions. Investing is all about doing your homework!

 

Don’t delay your investment journey
There’s a mantra in investing that goes ‘there’s no time like the present.’ In other words, the best time to dip your toe in the investment world is as soon as you can. By procrastinating and delaying your investment adventure, you could be missing out on potential growth, so it’s important to start your journey as soon as you financially can. And the earlier you begin investing, the sooner your money could enjoy potential growth and the power of compounding. What is this, you ask? Well, when you invest in companies, you typically get payments (dividends) out of their profits. If you put this money back into your investment plan, it’ll all add up and over a number of years, your pot could grow exponentially bigger. So, investing as soon as possible could help you take full advantage of the magic of compounding.

 

Do diversify your investment portfolio
There’s no denying it, investing comes with some risk, but there are many things you can do to manage it. A good way to mitigate risk is to spread your money across many different investment types (shares, bonds, property, and commodities) and regions. This strategy is known as diversification, and if you’re buying lots of types of investment across different markets, you’ll be less likely to lose everything. If you invest all your money in one or two companies you could be in for a nasty shock if these companies were to struggle. But, if you diversify and invest in many different companies, you’d typically decrease the odds of losing your money.

 

Don’t try to time the market
Although markets are unpredictable and sometimes illogical, many investors try to guess exactly when to be invested to maximise profit and when to leave the ship to minimise losses. But unless you have magical powers, it’s almost impossible to make such predictions. More importantly, if you do try to time the market, you could end up harming your investment journey. Indeed, if you sell your investments when markets are down and wait for markets to rise to make a comeback, you’d make your losses real and you could potentially miss out on the best days to be invested all year. So, instead of timing the market, try to remain invested regardless of markets movements, that way you won’t miss any good days and you’ll be able to grab cheap investments when markets drop.

 

Do think about the long-term
If you want to make the most of your investment journey, make sure you hold onto your investments over the long-term. Typically, the longer you stay invested, the more likely you are to see positive returns. Don’t believe us? Well, people who invested in the FTSE 100 and stuck with their investments for any 10-year period, between 1986 and August 2019, have had an 89% chance of making a positive return1.

 

Don’t listen to the noise
As an investor, it’s very easy to be influenced by what our peers are doing. But following the crowd isn’t always a wise thing to do. Take Bitcoin, for example. Back in December 2017, the cryptocurrency saw its value surge to $19,5112, creating some craze in the investment world. Encouraged by social media, traditional news outlets, and friends, many people rushed to buy Bitcoin, thinking it’ll keep reaching new highs. But less than a year later, in June 2018, the currency’s value went down to $5,8992, showing investors the dangers of listening to the noise.

 

Do pay attention to your fees
Whether you invest on your own or get the help of investment experts, there’ll be fees and charges to pay. And these costs are not harmless. They’ll ultimately eat into your returns, so it’s important to keep them to a minimum. If you’re picking your own investments, try and resist the urge to buy and sell too often as this can make your trading fees high. If you want experts to help you get started, it could be a good idea to shop around and compare the different offers from similar services. What fees are they charging? But also, what services do they offer? Look at the entire package and make an informed decision which will benefit your investment journey.

 

Don’t ignore tax
Just like fees, tax can have a significant impact on your potential returns. If you’re living in the UK, your investments could be subject to two types of tax: Income Tax every time you get payments (e.g. dividends), and Capital Gains Tax when you make a profit. Tax could make a huge difference to how much money you end up with. But don’t worry, there are ways to stop the government from dipping into your pot. If you open a Stocks and Shares ISA, you’ll be able to invest up to £20,000 each tax year (subject to change) and you won’t need to pay any Income Tax or Capital Gains Tax. Instead, you’ll get to keep more of your returns.

 

Do think about the kids
It’s not always well-known, but kids can invest in the stock market too. You could pick investments on their behalf via a DIY investment platform, but if you don’t have time to do it yourself, you could choose to open a Junior Stocks and Shares ISA where you can invest up to £4,368 this year (subject to change). The good thing with a Junior Stocks and Shares ISA is that your child won’t need to pay UK tax on any returns they make. Also, anything you put in a Junior ISA is locked in and the money belongs to your child only. And as soon as they reach the age of 18, they’ll be able to access their funds and their Junior Stocks and Shares ISA will automatically turn into an adult ISA, giving them the opportunity to continue their investment journey.

 

Don’t have to go it alone
Investing can feel like a daunting task, but it doesn’t need to be. With digital investment services, like Wealthify, you can become an investor in just a few taps and with as little or as much as you’d like. All you need to do is choose the amount you want to invest and the risk level you’re comfortable taking. We’ll do the hard work for you, from building your investment Plan to making adjustments, when needed, to take advantage of the good days and shelter your investments from the bad days. Investing has never been easier!

 

1: Data from Bloomberg

2: Data from Bloomberg

 

The tax treatment depends on your individual circumstances and may be subject to change in the future.

 

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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