As I wrote last month, I worked in the online brokerage space for a number of years and got to see firsthand how investors handled their portfolios on a daily basis. Some made me cringe and others I thoroughly enjoyed learning from. It was the latter that allowed me to help further shape my investing mentality and the desire to help others as they’re investing in the stock market now. I also was able to take away a few things that many overlook and which I do my best to not be guilty of personally.
Fees, Fees and More Fees
I HATE spending more than I have to when it comes to almost anything. Investing in the stock market is no different and this comes in the form of fees for both commissions and actively managed mutual funds. It is fairly common knowledge that fees will only take a big bite out of your portfolio over its life, yet so many are guilty of not watching them.
Do you like to trade individual stocks? If you do, then you should NOT be paying any more than $7 per stock trade. Most online brokers only pay $2 or $3 per trade and if you’re paying $9 or more then you’re losing out on money. I am all for paying for the service, but overcharging is something else altogether.
What about actively managed mutual funds? I am not arguing against investing in mutual funds, just paying an exorbitant management fee. Why pay someone to manage a fund that’ll likely lose out to the S&P? Drop down to a low cost index fund and you’ll save yourself considerable money.
Investing Starts With a Plan
When it comes to investing in the stock market, many do so in an unwieldy fashion. They invest in a few stocks here and there, but have no real plan. I don’t know about you, but I have a goal when it comes to my investing – to create income and growth so I can retire at some point. If you’re investing without a plan, then you’re essentially flying blind.
An investment plan may sound difficult or impossible, that however is a myth as it can be as simple or as difficult as you make it. When I counsel people in terms of investing in the stock market, I start with asking what your goal is and then go from there. Your answer to that question, and more specific questions will help you drill down and form a plan that’ll be actionable and guide your investment decision-making.
Investing in the Stock Market Takes Time
The other major issue many investors fail to overlook, when it comes to the stock market, is time. They either have an unrealistic expectation of how their investments should fair, or miss the fact that it takes time to reach a goal. This goes back to a number of issues, from being impatient, to listening to the financial “noise” that is so prevalent today.
Whether we like it or not, investing in the stock market takes time. Take saving for retirement as an example, unless you plan on winning the lottery, it generally is going to take years to reach that goal. However, if you don’t start out with that in mind you’re likely only going to betray what your long term goal is and regret it to boot. The key is to determine that goal, set a plan to match it and let time do its work.
Have you been guilty of overlooking one of these items while investing in the stock market? What else would you add?
Join our newsletter
Get financial tips from a licensed professional directly to your inbox.