This is the fifth installment of Stock Market for Beginners, our six-part series on investing and the stock market. You can read the previous piece, Is Investing the Same as Gambling?, here.
Once you start to learn the basics of stock investing, you’ll begin to understand lapses in your own investing knowledge. At first, the jargon may trip you up. What’s an IRA? A 401(k)? What do you mean by brokerage? The questions go on. Not to mention all the fine print.
But becoming a better investor isn’t about memorizing definitions. Instead, it’s about making the commitment to learning a little more each day by reading reputable, unbiased information.
Thankfully, investing in the stock market doesn’t need to be a life-sapping activity. You can learn about stock investing and improve your skills in just a few hours each month. Here are a few tips to help you get started:
1. Commit to Learning About Stock Investing
The first step to becoming a better investor is to ignore Nike’s advice. “Just do it” is for sports — not for investing. As an investor, you need to commit at least a little bit of time to learning, before doing.
With a wide variety of tools available, learning about investing is easier than ever.
Once you begin investing, you’ll have a lot of questions. I recommend that you try to learn about investing for about 30 minutes each week.
That could mean reading investing articles for five minutes a day. It could mean reading one investing book every few months. Or it could mean listening to a weekly investing podcast — or taking advantage of the many tools available online. Whatever you do, make a point of continuing to learn about investing, and pay attention to reputable sources. These are a few of my favorite educational resources:
Solid Reads for Stock Beginners
- The Little Book of Common Sense Investing by John Bogle
- The Four Pillars of Investing by William Bernstein
- Your Money & Your Brain by Jason Zweig
Investing Blogs for Additional Reading
- The Beginners’ Guide to Investing from the Security and Exchange Commission offers a myriad of resources on how to research a company before investing, how to decide on a broker, and more.
- The Alliance for Investor Education has similar resources, as well as actionable steps for both older and younger investors.
- The Securities Industry and Financial Markets Association provides insights and explainers on key financial topics.
2. Confront and Control Greed and Fear
If you’ve got money in the stock market, you’re an investor. But you’re a human first and an investor second.
Humans seem to be designed to follow the herd. We panic when other people panic. We get greedy when others are greedy. And we easily accept cognitive dissonance, so we don’t follow our own rules.
Greed and fear rule the stock market, and without a strategy, these human tendencies can be an investor’s undoing.
To become a successful investor, you must confront and control avarice and fear. Some people say that you ought to do this by having a great financial advisor in your corner. Other people suggest that increasing your knowledge will be your greatest asset. Still, others suggest that you should simply work on becoming a better person.
Regardless of your investing approach, contextualizing your investments can help manage greed and fear.
If you can earn income from a job, you don’t need to live off investment income. You can leave your investments alone during volatile times. You can take comfort in the fact that a modest return will help you to achieve your goals.
If you’re properly insured, then you don’t need to rely on your investments to care for your family in the face of an unfortunate event; they will have cash from an insurance policy.
A decent cash buffer can keep you from liquidating your investments at inopportune moments, and it could provide seed capital for new projects, such as starting your own business or other ventures.
The last thing anyone wants is to be forced to sell at an inopportune time, when a stock or other investment has lost value. Sometimes life happens, though, so if you need to liquidate a holding to prevent yourself or your family from facing a mountain of debt, it may be the right choice. Having a cash buffer in savings — often called an emergency fund — is a smart strategy to minimize pressure selling.
3. Learn From Other People’s Mistakes
Every wealthy person I know can tell me about at least one time when they lost a lot of money on an investment. Successful investors almost always learn about managing their risk the hard way. One shortcut to successful investing is to learn from other people’s mistakes.
Sure, you’ll still lose money from time to time. But paying attention to common mistakes, and ensuring you don’t repeat the errors of others, can better prepare you as an investor.
When you learn about other investors’ mistakes, take note of how often they told themselves, “This time it will be different.”
If you take the time to learn from other people’s mistakes and improve your own investing habits, you will gain confidence over time.
4. Understand That Investing Takes Time
Above all, becoming a better investor is about accepting that like anything worthwhile, it takes time to get your bearings.
Avoiding temptation for a fast win matters more than hitting a grand slam. In their delicate dance with the markets, investors must learn to let the markets lead.
Becoming a successful investor also means accepting that the stock market may not make you rich. That’s not to say that investing in the stock market is unimportant. It can help you grow a savings habit into a small fortune. And it can also help you turn a small fortune into a somewhat larger fortune.
But growing your wealth in the stock market can be slow. Real wealth-building happens when you save a portion of your paycheck. It happens when you spend less than you earn. Investing is just a tool to help with those habits.
One of the easiest ways to achieve real wealth building is to “invest in yourself first,” according to Paul Sundin, a certified public accountant with Emparion. “This may sound like a cliche, but it’s true.”
“Learning a high-income skill increases your market value as a professional,” says Sundin. Through this “‘reskilling,’ you add learnings and experiences through educational webinars and other online classes that will help you level up professionally.”
“Professional success results in financial successes which can, later on, enable you to invest,” Sundin adds.
Being well-rounded professionally can only increase the career opportunities available to you. In turn, this may open up more chances for investing and other financial opportunities through increased monthly earnings — which enables growth both in your take home pay and your investment nest egg.
The Bottom Line
Ultimately your success as an investor depends on both your dedication to learn about investing as well as on the market itself.
You can back up your investment decisions with information and insights gleaned from well-vetted sources, but you should always remember that no investment is risk-free.
Understanding that risk, however, and assessing your comfort with it, can ease the pangs of doubt all investors feel from time to time.
Investing does not happen in a vacuum, and taking the time to learn about common mistakes will help your confidence and approach. Though there’s no guarantee that you will never make an investing mistake, you will learn from anything that directly affects your bottom line.
In the movies, investing seems like a glamorous way to accumulate wealth quickly.
The reality is that, like most things, investing is a process that takes time.
While you’re waiting for your returns, take the time to invest in yourself by enhancing your financial education — and always remember, when it comes to financial success, you’re playing the long game.
This is the fifth installment of Stock Market for Beginners, our six-part series on investing and the stock market. To read the next piece, Start Investing, click here.
Additional reporting by Connor Beckett McInerney.
Past performance is not a predictor of future results. Individual investment results may vary. All investing involves risk of loss.
