If you are considering investing in the stock market, you may feel overwhelmed by all the information you encounter. It seems that everyone wants to share an opinion on the best strategies for working the stock market. With so much diverse information, how are you supposed to know what is true and what are simply myths? Take a look at the following three myths that may stop you from investing in the stock market and a few strategies that can help you achieve financial rewards now and in the future.
You Need a Large Sum of Money to Invest
A common myth about investing in the stock market is that you need vast amounts of money and deep pockets. However, you actually don't. According to William O'Neil, founder of Investor's Business Daily, you can start your portfolio with as little as $500 to $1,000. The key to investing and reaping financial rewards is not how much money you start with, but learning how to pick the right stocks for your specific investment needs. Invest as much money as you can early on so that your money can begin to compound and grow.
You Should Invest Only in Long-Term Markets
Another common myth about stock trading is that you need to hold on to your investment for years before you see any profit. This statement is not necessarily true. Long-term investing allows you to ride through the swings of ups and downs in the stock market. However, if you have done your research on market trends and you have help from a professional investment consultant, you can profit on short-term investments.
Swing trading is a short-term method of trading stocks. These trades usually last about two to six days and the gains can lead to substantial profits. Another option for short-term trading is investing in money market funds. The U.S. Securities and Exchange Commission (SEC) requires that money market funds invest in short-term offerings such as certificates of deposit and U.S. Treasury bills. Money market funds and swing trading are good methods of short-term trading.
You Need a Diverse Portfolio
In the past, investing basics suggested that you should diversify your portfolio so that if one of your stocks fail, you have others that will profit. In reality, many successful investors have very small portfolios. In fact, Warren Buffett, one of the most successful investors of all time, has a substantial portfolio worth billions of dollars while holding only a handful of stocks.
Investing in too many stocks can prevent market-beating returns while investing in too few carries a high risk if the companies you have invested in go bust. Is there a magic number of stocks to invest in? Not really. The best approach is to understand your needs as an investor, how willing you are to expose yourself to financial risk, and how much stock trading education you have or are willing to learn.
When investing in the stock market, never use money that you cannot afford to lose. Trading in stocks has inherent risks, and you must be willing to take these risks. However, if you do diligent research, hire an investment consultant, and stay on top of market trends, you have the potential to reap solid financial rewards.