Top 25 Stock Market Tips from Finance Pros

1. Think Long-Term When Investing

David Rae, President, DRM Wealth Management

When investing in the stock market, you have to think long term and avoid the temptation to check your portfolio several times per day. All this will do is waste your time, stress you out, and increase the odds that you will make a big mistake and sell at the wrong time. Plan to set up automatic contributions to your investment so you can buy more investments, no matter where you are.

2. Identify How Much Risk You Are Willing to Take

Judith Corprew, Executive Vice President/Chief Compliance & Risk Officer, Patriot Bank, N.A

Before deciding where to allocate your investments, it’s critical to think about your long-term and short-term goals. It’s important to know how much risk you are willing to accept. As you approach retirement, fixed-income securities such as highly-rated bonds and money market accounts offer a greater level of safety. But a younger investor might want a higher-risk, higher-reward strategy for at least part of their investments to maximize returns over a long period of time.

3. Invest in an Index Fund Instead of in Individual Stocks

Adam Fortuna, Owner, Minafi

Depending on your goals, investing in individual stocks may be more trouble than it’s worth. Choosing index funds in a specific sector can provide your portfolio with the tilt you want, but with fewer dramatic swings. There are three criteria that can be leveraged to help guide fund choice. The most discussed is “expense ratio,” where lower means fewer fees to you. The second is the number of stocks in the fund. The higher the number, the more diverse the fund. Just as important is “total assets” under management. The more assets, the more other people also agree this is a great fund. When comparing two mutual funds, I’ll lineup these three criteria for funds in the same category to make an informed decision.

4. Be Patient & Don’t Let Your Emotions Impact Your Decisions

Alon Rajic, Managing Director, Money Transfer Comparison

In order to be successful at both stock trading and investing, you need to be patient and maintain your composure in every situation. The nature of work is stressful, almost hectic, and you are bound to be losing substantial amounts of money some days. It could be very tempting to try to recuperate your losses by “doubling up” on your gamble, or opening high-risk positions that were not a part of your game plan—but this is precisely what you should be avoiding. That does not mean you shouldn’t be dynamically adjusting your investment plan to fit the current market conditions—it just means you shouldn’t be modifying your plans in a rushed or disorganized manner while carrying an emotional burden.

5. Establish Your Goals & Objectives Prior to Investing

Lou Haverty, Chartered Financial Analyst, Financial Analyst Insider

Every investor should try to establish what their goals and objectives are prior to investing. There isn’t necessarily a wrong objective, but it’s more important to understand your goals because that will help drive your decisions. For instance, if you plan to regularly trade in and out of stocks, you might be better off opening an IRA account so you don’t have to pay taxes on your trades. If you plan to be a long-term investor, taxes won’t be as important of a factor and you could hold your account in a taxable or tax-free account.

6. Learn the 5 Components of Stock Trading

Danielle Shay, Director of Options Trading & New Trader Specialist, Simpler Trading

Trading has to be based on a specific rule set and trading plan. You start by learning the five components, mastering them, and then sticking with what works. These five components are:

• Setup – a reason to get into the trade. A setup is a high probability chart pattern that has proven through time to work often. Learn to recognize your setups, and track them to tell you how consistent they are.
• Strategy – a defined way to trade the setup. With each setup must come a way to trade it. All a new trader needs to do is master one strategy in combination with a setup.
• Entry – where do you have an edge on your entry? Your entry can sometimes make all the difference. Entering too far from your stop point will ensure that you can’t sit through heat when it happens.
• Stop – at what point is your trade idea not working out? Before you enter any position, you should know where your stop is. What method do you use to place your stop?
• Profit target – where do you intend to take profits? Just as you know where you’ll exit when things go wrong, you should also know where you want to exit when the trade is moving in your favor.

7. Have a Balance of Low-Risk, Moderate-Risk, & High-Risk Investments in Your Portfolio

Jacob Dayan, CEO & Co-Founder, Finance Pal

Diversify your portfolio with a healthy balance of low-risk, moderate-risk, and maybe some high-risk investments. Play it safe with the majority of your investments in tried-and-true stock options that always return a profit and continue to invest in them. Now the profit margin may not be massive by any means with these, but it’s a safe bet that long-term investment will yield a healthy ROI. You should also invest in some moderate-risk options that show some promise of yielding a greater ROI percentage than the safer and more stable stock options. It is important to be careful; do some research on these investments and try to get a sense of whether it’s worth investing in or not. This is especially true for the high-risk investments.

8. Look for Value Stocks to Buy

Tim Biggam, Options Analyst, Trading Tips

Over the long run, value stocks outperform growth, so look for stocks trading at relatively cheap valuations based on P/E, P/S, and P/FCF. It is vital to not chase, but rather wait for opportunities because patience always pays. Solid fundamentals and a large moat (barrier to entry) are also vital for long-term, sustained success. Also, use technical analysis and charting to better help pinpoint both the entry and exit points for the stock under consideration—both for a target profit area and a stop loss.

9. Invest Through Robo Advisors

Jelani Smith, Founder, Bay Street Blog

Both inexperienced and savvy investors are highly encouraged to implement robo advisors into their portfolio. The automated investing service offers peace of mind through portfolio management, auto-diversification, and most importantly, significantly lower fees, as compared to ETFs.

10. Consider Mutual Funds for Minimized Risk

Dave Ramsey, Finance Author, DaveRamsey.com

If investing in single stocks may be too risky for you, consider investing in good growth stock mutual funds. Mutual funds are a simple, even boring, investment plan, yet they work well for most people. Of course, all investing requires a degree of risk—there really is no sure thing. But mutual funds are a great balance of reasonable risk and excellent returns. They have built-in diversification that will keep you from putting all your eggs in one basket.

11. Invest in a Low-Cost Index Tracking Fund

Barry David Moore, Certified Financial Technician & CEO, Liberated Stock Trader

The least demanding way to invest in the stock market is to invest through a fund. There are two types of funds: First is the actively managed mutual funds that have higher fees—92% of these funds fail to beat the underlying index over any three-year period. The second type is the index tracking fund, which typically has a lower cost and is more effective in matching the growth of the stock market. This means they are growing in popularity because of the higher return on investment you receive. You should also use the most tax efficient way to invest, which means using your Investment Retirement Account (IRA) first. It’s best to invest in a low-cost, index-tracking fund through your tax-free IRA.

12. Take Advantage of Your 401(k) Matching

Stash J. Graham, Managing Director, Graham Capital Wealth Management

The best return an employee can produce is by using the company’s 401k match plan. Make your contribution up to the employer match limit and you will produce an instant return on your money. For employers, a good 401(k) plan is a powerful tool for small business owners to recruit good talent. For a small business owner, if the plan is set up correctly, they can make materially-sized contributions, which could offset some of their taxable income.

13. Learn Proper Investment Management Skills

David Brooks Sr., Founder & President, Retire SMART

It is recommended that investors learn proper investment management skills and read books about stock market investing. Once they have accomplished this, they should look to create a long-term investment plan so they can diversify future income streams and not rely on one income source to support themselves and their family. It’s also extremely important to have a predetermined exit strategy on their investments.

14. Do Not Follow Trends

Michael Osteen, Chief Investment Strategist, Port Wren Capital, LLC

In general, one of the most effective ways to becoming a successful stock investor is to do the opposite things that everyone else does. For example, if other investors aim for short-term trading, you can take a multi-year, long-term approach. While other investors panic when stock prices go down, you can take this opportunity to buy stocks on sale or look for short-term negative sentiment.

15. Diversify Investments Among Asset Classes & Sectors

Gerri Walsh, Senior Vice President – Investor Education, Financial Industry Regulatory Authority

One constant principle of investing is that markets fluctuate. Stock prices will rise and fall for a number of reasons—the economy, investor sentiment, political uncertainty at home or abroad, energy or weather problems, or even corporate scandals. This means market performance isn’t always predictable. That is why diversification, or spreading the investments in your portfolio among different asset classes and across different sectors within each class, is such an important strategy. Diversification is a time-tested way to manage risk. It is also important to know what you want to accomplish with your investments before you actually invest. For example, you might want to purchase a home, fund a child’s college education, or build an adequate retirement nest egg. If you set financial goals at the outset—and match your investments to achieve those goals—you are more likely to reach them.

16. Buy Stocks of Companies That You Know

Kenneth Nuttall, Director – Financial Planning, BlackDiamond Wealth

Newbies are recommended to invest in mutual funds to see how the market works. However, it’s also advised that they buy individual stocks, as that will keep them interested in investing. When it comes to buying stocks, just buy stocks from the companies that you know. For instance, if you like coke, buy Coca Cola stock.

17. Do Not Time the Market

Marguerita Cheng, Chief Executive Officer, Blue Ocean Global Wealth

One of the most common mistakes in stock market investing is trying to time the market. Time the market, or “market timing,” means trying to figure out the best time to get in the market, or invest. It also means the best to get out of the market, or sell. It’s not easy to be right on both ends. It can be unsettling to experience market volatility, so that’s why it’s important to understand the difference between savings (which are more stable) and investments (which can be more volatile). It’s the time in the market that is more important, not necessarily timing the market.

18. Make Sure You Get Proper Guidance

Dock David Treece, Finance Editor & Personal Finance Analyst, Fit Small Business

If you’re going to invest in the stock market, it’s a good idea to enlist the help of a licensed financial advisor. The right advisor can help you to better understand your financial needs as well as your goals and objectives. They can help you to plan for the future and make sure that the investments you choose will help you to reach your long-term goals.

For more information, be sure to check out our guide on finding a financial advisor who is right for you.

19. Never Subsidize Losers with Winners

According to The Street, individual investors who have a limited amount of capital to invest often commit the mistake of holding on to the losers and selling the winners. Good stocks are sold to subsidize the losers. However, when bad stocks stay bad and your good stocks are sold, your portfolio will keep shrinking. Learn which stocks to hold on to and find out which ones you should let go.

20. Start Investments in Smaller Amounts

GetMoneyRich recommends newbie investors start investing in smaller amounts and go slow. As a beginner, you should build upon your experience before you commit to a big investment. Ideally, you should not spend more than 10% of your monthly net savings initially in stocks. As your experience grows and you become more confident, you can gradually grow your investment as well.

21. Set Up a Conservative Investment Strategy

If you’re a beginner in stock investing, Money Under 30 suggests that you learn to set up a conservative investment strategy. While many advise young investors to be aggressive with their investments, it’s all right to test the waters, especially if you are nervous about the market. Allocate your assets conservatively—invest in bonds or bond funds to learn about investing without taking on too much risk, and keep a small portion of your portfolio invested in stocks.

22. Don’t Buy Stocks Based on Past Performance

According to Financial Express, though it is good to know the past performance of a particular stock, it could be risky to completely depend on it. The returns of a stock will depend not only on the company’s movement, but also on market conditions and the performance of the economy. Learn to read the fundamentals and use that instead of buying stocks solely based on their past performance.

23. Be Careful with Momentum Trading

When the stock price starts to move in one direction and is accompanied by a high amount of trading volume, that’s when momentum trading takes place. According to Wall Street Survivor, if you want to use this trading strategy, you need to jump on board soon after the momentum starts and then ride the wave for a while. Make sure to be careful and not stay too long, as momentum could swing in the opposite direction. Also, don’t jump too soon, as you could miss out on potential profit. Ideally, your desired profit should be somewhere in between.

24. Penny Stocks Are Ideal for the Average Trader

Timothy Sykes’ advice for the average trader is to invest in penny stocks. Their volatility makes them ideal for small accounts. Penny stocks, also known as small-cap stocks, are cheaper, more volatile, and far more exciting than traditional stocks. They are ideal for newbie traders.

25. Assess Your Financial Situation

Online Finance Degree recommends assessing your financial situation first before you invest. It’s best to make sure you have the funds available to commit to investing. You should have little or no debt and at least six months’ worth of living expenses in an emergency savings fund. Stock market investing can be volatile and risky, so a solid financial foundation is needed to avoid further financial distress.