Decide on a goal
Before carrying money to the stock market, you need to understand why to do it. Whether you want to save for retirement, earn passive income or save money through investments, you need to clearly articulate your goal at the start and not forget about it in the future.
Good goals usually meet several criteria:
limited in time;
If it turns out that in order to achieve the goal, superhuman efforts or investments are needed, then most likely there will be no result. Goals that are too ambitious are often unattainable.
We advise you to abandon the idea of living on investment income and start simple. For example, with the payment of communication costs or savings for gifts. Small tasks will allow you to quickly get the first result, and it will give you self-confidence.
Form an airbag
Job loss, repairs or illness can happen at any time. Free money will provide peace of mind and secure investments – in which case you will not have to withdraw money from a broker. The same reserve will provide peace of mind in the event of a portfolio drawdown.
There is no one size fits all pillow, but the reserve should provide 3 to 6 months of life at a comfortable level. For example, if every month you spend about 80 thousand on living, then for three months there should be 240 thousand in reserve.
When choosing how to store your pillow, remember that the main thing is quick access to money. From the options: a bank deposit with the possibility of withdrawal or a debit card with interest on the balance. Some of the money can be kept in cash, but it is prone to inflation and is easier to spend spontaneously.
Invest only free money
To do this, use the “pay yourself first” rule – when you receive any income, the first thing to do is put some of the money into a reserve or investment. This rule works with any income.
5%, 10%, or 15% of income can go to the reserve – the main thing is that the figure is comfortable. This money can be directed to a brokerage account, an airbag, a large purchase, or to buy securities at a good price.
Let’s say you know that after all the expenses out of 100 thousand of the salary, an average of 20 thousand remains on hand. You can start trying to save 10% as soon as you receive it. Then it will be possible to accumulate 120 thousand in a year. You can increase this figure by revising your expenses: if you reduce your monthly spending by only 5 thousand, this will bring an additional 60 thousand a year.
Tune in to a long process
In order not to be disappointed in the stock market, it is worthwhile to think in advance that investing is a long-term game. You won’t be able to enter the stock market and start making money quickly. Here are a few rules to help you stay on track in your early years.
Make your own decisions. Your financial result depends only on you. Don’t follow the crowd and rely on analysts’ opinions. If you used the advice of an Instagram guru and as a result lost money, the responsibility is on you. Understand the situation and be guided by your own opinion.
Don’t expect big profits. And don’t trust those who promise them. The result will come, but it will take time. Instead, focus on gaining experience. It is he who will become the guarantee of future income.
Expect losses. Losses are an integral part of investing. Don’t be discouraged if something went wrong. View losses as an investment in yourself – this way you gain valuable experience from which you can draw useful conclusions.
Invest for the long term. Remember Warren Buffett’s rule: “If you’re not ready to own a share for 10 years, don’t even think about owning it for 10 minutes.” Choose securities in which you see long-term upside potential. This approach will allow you to sleep soundly at night and not worry about short-term price fluctuations.
Stick to the plan. Determine in advance what securities, for what amount, for how long and with what risk you want to buy. This will allow you not to succumb to emotions and will save you from spontaneous decisions in the event of a portfolio drawdown.
The less you touch the portfolio, the better. Constant rearrangements in the portfolio will increase the likelihood of errors, and commissions will eat up profits.
Don’t quit your main job. To invest, you need a constant source of income. Leaving your job to live on income from the stock exchange will not work. At first, investments can only be an addition to the main income.