Today we have a guest post from fellow blogger, Jon. Enjoy!
If you do a search online about investing, you are going to get a lot of search results. Because of this, many investors, both new and old are overwhelmed. They feel that investing and being successful as an investor is a complicated task. In reality though, investing is relatively simple. This doesn’t mean it is easy to achieve success as many factors come into play, but this post will show you just how simple investing really is.
Two Reasons Why Investing Is Simple
#1: Wall Street Is A Business
Every investor has to remember that at the end of the day, the companies on Wall Street are for-profit firms. This means they are out to make money. How do they do this? They primarily make money on fees and commissions. The more you trade, the more they make.
Therefore, it should come as no surprise that the more volatile the stock market is, the better. When it is volatile, many investors will trade on pure emotion. The more trades people make, the more money the Wall Street firms make.
Another area where Wall Street makes money is through offering new products. When Wall Street touts new products, many times they are just old offerings that have been rebranded after a marketing firm helped make it look more appealing.
#2: The More Confusing, The Better
There are a lot of different investment options out there for a reason. The more complicated a subject can seem, the more potential money there is to be made. Think back to the point above. Wall Street makes money by getting you to trade more often. Well, if they can introduce 10 products that essentially do the same thing but look different, there is a chance that some investors will take the bait and switch from their current investment to the shiny new one.
At the end of the day though, it is essentially the same exact product, just marketed differently. This is the same reason why people are so confused when it comes to eating healthy. There are low fat, low sodium, low sugar, no fat, no MSG, all natural, organic and no GMO products out there. Which one is the best one? Which is better than the others? Ask 5 people and you will get 5 different answers.
Breaking Down Investing To Make It Simple
So how do you as an investor weed through all of this nonsense so that investing can be relatively easy for you? Here are the steps below that you need to follow.
Get Your Emotions Under Control
Your emotions are your biggest crutch when it comes to being successful investing. And this shouldn’t be a surprise since we are talking about money here and money is emotional. When the market drops and we start losing money, we sell and run. When the market rises, we get greedy and want more so we keep buying.
But to be successful, you need to get your emotions in check. You do this first by educating yourself. Read some books on investing by the greats. One book that I highly recommend is A Random Walk Down Wall Street. If you can understand the basics of how the market works, meaning that over the long term you can make money, you will be better equipped to deal with your emotions.
Don’t Fall For Gimmicks
The next step to being a better investor is to not fall for gimmicks. Refer to the previous section on how Wall Street makes money. Then read the book I recommended above. You will understand that no one – not even the professional money managers – know what the market will do on day-to-day basis. Because of this, there is no need to overpay for actively managed investments since they can’t consistently outperform the market.
Your best option is to go with a passive investing strategy instead of an active one. The lower costs and earning what the market earns will pay off greatly over the long-term.
Overcome Short-Term Gratification
Lastly, you have to take a long-term approach when investing in the stock market. If you are looking to get rich overnight, you are going to fail miserably. Wealth is built in the stock market over the long-term. If you look at the successful investors over time, like Warren Buffett, you will see that patience and investing for the long-term is profitable.
I know this can be tough in the instant gratification world we live in, but you have to take this approach if you want any hope when it comes to investing.
Overall, investing in the stock market isn’t terribly complicated. If you can learn to control your emotions, invest in low cost mutual funds and ETFs and do so over the long-term, you will see success.
But while these tips make it sound easy, understand that your emotions are a powerful force and the media and Wall Street are out to provoke you to react. The more disciplined you can be, the better chances of you succeeding.
Jon writes at Penny Thots, a personal finance blog that talks about all things personal finance. The goal of the site is to improve your finances one day and one penny at a time.