The fear of investing in the stock market has embraced many people for years. It’s quite understandable given the uncertainties and the inevitable volatility of the market, how can one trust the market? No one wants to make losses. Everyone invests to win.
Difficulty doesn’t lie in the purchase of stocks, but knowing the right company stock to invest in and the right time to invest is where the problem lies. David Tetteh in a Ghana Talks Business webinar outlined 7 fundamental rules to ensure successful investments in stocks. These include:
Rules of successful investing in stocks – #1 Get started early
Starting your investment early gives you the power of compounding or accumulation. Starting your investment early builds wealth gradually as opposed to starting late. Should two people invest the same amount of money in a stock at different time interval, the one with the longest time interval tends to benefit immensely than the one with a shorter time interval. Also, beginning your investment early enables you to achieve your financial goals quickly.
Rules of successful investing in stocks – #2. Invest Consistently
According to David Tetteh investing continuously helps in increasing your total amount of investment thereby increasing your yield. Continuous investment increases your total pool of funds and as such will yield higher returns.
Rules of successful investing in stocks – #3 Think long term
Long-Term investments provide greater returns than short-term investments. Long-term investment also shields your investments from the volatility of the market in the short term. David Tetteh cited an instance where his client earned GH¢3 million from investing for over 25 years.
“My all-time favourite client was a civil servant who will come in every week and bring in money. When he went on retirement he had a portfolio of GH¢3 million which was the envy of all,” he recounted.
Spreading your investment across multiple investment vehicles helps you increase the odds of your investment success as well as minimize the risk of losing your entire investment. Stock markets are volatile and unpredictable. Focusing all your investment on one stock can lead to a significant loss in the value of your portfolio if the stock should plummet.
#5 Never borrow to invest
Due to the volatility of the market, borrowing to invest could be a risky thing to do unless according to Dvaid Tetteh “you are guaranteed your return is going to be higher than your cost of borrowing.”
#6 Invest in what you believe in
Your decision to invest in particular stocks must be based on justifiable assumptions and understanding of the stock. Research and analysis are important to find the right stock to invest in, so you can maximize returns on your investment.
#7 Ignore short term fluctuations
The 7th rule of investing in stock market, according to David Tetteh, is “when there are short term fluctuations, don’t panic because in the long-term….it always evens out and gives you a return.”