When a lot of young people get introduced to the idea of investing, they get all excited about the possibilities of making money on the stock market. After all, it’s so much more fun to be optimistic about making money than it is to be pessimistic about losing money. However, before a young person begins to invest, he needs to learn the basics of personal finance since one needs to learn how to walk before he runs.
Before a young person invests his hard earned money in the stock market, he should take a long term view in his approach. After all, it is how the gurus of investing built their fortune. And there’s no better example than billiionaire investor Warren Buffett.
Warren Buffetts stock picks are the classic example of buy and hold stocks. That’s not to say that he doesn’t monitor these stocks as company and business strategies change, but by and large, his strategy is built on buying good companies for the long haul. It might not sound very sexy to the young investor who wants to make money right away but if you want results fast, then that’s considered trading and not investing. When you invest in a company, you should invest for the long term with the mind set as a actual business owner.
When you invest in long term stocks, that means you are committing your money for the long term. Even if there are market fluctations, you will still hold steady unless there is a change in the business you don’t agree with. This is important for the investor to understand that these market blips really don’t mean much when you have a long term horizon of 5-10 years or beyond. However, this also means that in order not to miss the money, you need to get your financial house in order with a healthy emergency fund so you won’t be tempted to sell when you’re strapped for cash. Countless investors have made this mistake of selling too early when it was not their intention because of financial difficulties. Make sure this doesn’t happen to you.
A newbie investor has a lot to learn about the stock market and in truth, it’s a never ending process. However, making sure you don’t invest with money you need is one of the basic tenents that everyone should heed.