💡7 Crucial Don’ts for Stock Market Investing
Here are certain "rules" to follow when it comes to investing.
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With that, let’s explore this week’s topic: “7 Crucial Don’ts for Stock Market Investing”
The stock market is made up of different types of investors.
When the market is bullish, investors often feel optimistic and may act recklessly, thinking that the rally will persist.
Conversely, during bear markets, extreme pessimism can lead to actions detrimental to their financial health.
With the US stock market hitting all-time highs now and then, some investors might wonder if a market correction is on the cards.
Regardless of what happens to the market (we can’t predict it for sure), maintaining discipline and adhering to certain “rules” can help ensure long-term investing success.
“The investor’s chief problem — and his worst enemy — is likely to be himself. In the end, how your investments behave is much less important than how you behave.”
— Benjamin Graham
1. Don’t Invest Without Having the Right Foundation
The stock market can be a great place to generate wealth over the long term.
However, before diving in, it's crucial to establish a strong financial foundation by:
Educating yourself about the various investment instruments available
Understanding your financial goals and risk tolerance
Ensuring basic and adequate insurance coverage
Setting aside emergency funds
Paying off high-interest debt
This preparation is essential to start your investing on the right footing.
2. Don’t Leverage
While it may be tempting to borrow to invest, don’t.
Leverage can work both ways. Gains can be amplified but at the same time, losses will be amplified too.
If the market crashes again, a portfolio financed with borrowed money can lead to significant losses and financial stress.
It's far wiser to invest with ready funds, ensuring peace of mind.
3. Don’t Use Your Rainy Day Funds to Invest
Resist the urge to invest your emergency funds (also known as rainy day funds), even when market opportunities seem attractive.
These funds are meant for urgent, unforeseen circumstances, and not to take advantage of a plunging stock market.
Using your emergency funds to invest undermines their purpose and can jeopardise your financial security.
4. Don’t Invest With Money You Need in the Next Five Years
While the stock market generally trends upward over the long term, short-term volatility can be unpredictable.
To avoid selling investments prematurely, only invest money you won’t need for at least five years.
Safer instruments like fixed deposits or high-interest savings accounts are more appropriate for short-term needs like a wedding, home renovation, or education.
5. Don’t Try to Time the Market
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.” — Jack Bogle
Attempting to time the market by selling during downturns and buying during recoveries is notoriously difficult.
Missing even a few of the market's best days can drastically reduce long-term returns.
6. Don’t Invest All Your Money in a Single Stock
Diversification is key. Even the best companies carry risks.
Spread your investments across multiple companies, sectors, and geographies. This reduces risk and enhances long-term stability.
You can also diversify instantly by investing in an exchange-traded fund (ETF) that tracks the broader stock market.
7. Don’t Panic-Sell During a Market Downturn
Despite numerous economic crises and market crashes, the stock market has gone on to march higher over the long run.
Panic-selling in a downturn only locks in losses. As history has shown, staying the course does wonders for your portfolio.
By adhering to these principles, investors can navigate volatile markets and achieve long-term financial success.
What other “rules” would you add? You can comment down below.