This is a guest post by Erika from Newlyweds on a Budget. She writes about managing finances, living frugally, and life as a newlywed.
About a week ago, I knew nothing about investing. The stock market seemed like a scary game of Chutes and Ladders–except it's real people and real money.
At the same time, I've heard of people making tons of cash by playing the game. A high school acquaintance of mine bought his first car with money he made from the stock market. A friend of a friend took out a second mortgage on their house to buy Apple stock several years ago. Sounds pretty sweet to me.
I also know that my savings account yields only 0.9% interest right now. Playing the stock market, you can definitely average better than that.
This past weekend, ING Direct offered a $100 Black Friday bonus after making two trades ($9.95 a piece) through their Sharebuilder account. For someone who knows nothing about investing, this seemed like a good way to start testing the waters. However, I decided to create some guidelines for a new investor like myself.
Everyone wants to be a millionaire, but slow and steady wins the race. Start off with a small investment–we only spared $100– until you get the hang of it. If you lose money, which you probably will, no harm done. It was only chump change. But if you gain money, you'll be ahead of the game.
Invest in Stocks You Know
Sure, everyone wants to know who the next Apple is. But for a beginner, investing in stocks you know can make you more “invested” in your actual earnings and more inclined to read up on articles and information that can lead to better investment decisions.
Don't Try and Time The Ups and Downs
There have been so many ups and downs in the stock market this year–don't try and time it. If you can buy on one of the down days, with reports of doom and gloom, by all means do it. But don't try and time it to the second, by buying and selling on the ups and the downs. If you're young enough, ride the waves. But also don't be passive and just watch your stocks sink. It's a fine line.
Don't Get Emotional
So your stocks sunk? How many times have the stocks gone up and down this year? It can be a scary place but remember that you only invested a small amount of money to begin with. You're still a beginner. Try and read up as much as possible before you decide that you're the next Warren Buffet.
What other investing tips would you recommend for a first time investor?