You may be looking at the stock market and wondering why on earth anyone would buy stocks during a market correction.
However, just like buying rental property after the market tanks, buying stocks during a downturn is an excellent way to build wealth. Unlike buying groceries and other consumables on sale, stocks will grow in value.
Start With The Right Platform
According to the experts at SoFi, setting up an investment account that has low fees is critical to actually making money. While it’s not a great idea to rapidly pull money out of stocks, especially after a drop, a transaction fee each time you make a sale or a purchase from your online stock buying account will quickly cut into your profits.
What Is An Equity?
Equity or stock is a portion of the business. Owning just a few stocks will not give you any power, but owning all the stocks can mean that you own the company.
It is possible to get in early on a business that is poised for growth and earn a great deal as the company grows in value because each equity grows in value. It’s also possible to lose your investment if the business doesn’t take off. This is why it’s critical that you diversify.
How Do I Diversify
One of the simplest ways to diversify is to buy index shares. Instead of investing in a business, you purchase a sliver of an index, such as the S&P or the Dow Jones. You can also find index shares specific to an industry, such as oil & gas. If you know a lot about a particular industry, you can make better choices.
The simplest way to build a portfolio of index shares is to sign up for your company 401(k). Not only can you lower your taxable income by putting money in your 401(k), but you can often get a company match that you can use to invest in more volatile funds. Study the history of a fund to give you a ballpark idea of what to expect.
Avoid Fads
As a general rule, when an investment makes the news, it’s either gotten quite expensive or may be close to the peak of value. It’s also critical that you avoid worrying about bad news and rumors. The markets tend to drop quickly on rumors and rise slowly on facts. Investors often see small bumps in value after a positive jobs report, even though you only see bad news on unemployment for weeks on end on your national news program.
Buy and Hold
If you see a particular investment drop, it can be tempting to dump the whole fund and look for something better. However, that is a good way to rapidly lose your total investment. What goes down will likely come back up, given time. If you can’t bear the drops, don’t look!
A stock portfolio is one of several tools you can use to boost your retirement income. You can also use stocks to build wealth now; for example, you can borrow against your 401(k) to make a down payment on a home and gain a footing in real estate.