It’s the end of the year and the Dow Jones Industrial Average experienced a 26% gain for 2013; this was the best yearly performance in the past 15 years. Standard and Poor, a larger stock index, had a nearly 30% gain over the same period. The Huffington Post muses that as far as the stock market goes, “profits are hitting record highs.”
However, Americans are not uniformly experiencing these highs. Many of these profits are generated by corporations, as only about 50% of Americans currently own stocks. Yet investing is one of the best ways to increase your savings and beat the shrinking effects of inflation. Ready to start trading in the new year? Here are three tips on investing in the stock market.
1. A Good Stock Market Investment Strategy
How can you get a decent portfolio going? There are a few simple concepts you can keep in mind. Start conservative, buy what you know, and diversify your holdings. What does this mean, exactly? When you start off investing, take it slow, and don’t risk half your savings on the market when you’re likely to make some beginner mistakes. Invest in companies you understand, rather than markets foreign to you, that you will not be gauge correctly. Have a number of stocks in different industries so that your risk is spread out.
2. Be Wary of a Hot Market
According to a recent article in Forbes, many pro investors say that, when a market becomes so hot, or “frothy,” that even the typically reserved and cautious investors are buying in, it’s a sign that “the ride is almost over.” In other words, don’t assume that momentary hype is going to translate into a financially balanced long term solution.
3. Is Option Trading Something I Should Look Into?
Option trading is something only experienced investors should consider doing because it involves higher risk, and greater investor knowledge of how to forecast likely outcomes. Options basically give you the “option” to buy a stock at a certain price in the future. You pay a fee for the buying option. If, at that point in the future, the stock has done poorly, you can cancel the purchase and only pay the fee. If the stock has done well, you are guaranteed the option of buying it at the original agreed to price.