Don’t Forget Frictional Expenses! Three Tips for Stock Market Investment

Market investment

Did you know that U.S. stock markets have seen $6 trillion in gains this year, according to Forbes? Stocks are up 30% in the U.S., and markets in other parts of the world are seeing similar gains. This recovery upswing is important, since, during the 2008 financial crisis, global stocks lost about $30 trillion in value.

The stock market has long been a source of both great gain, and great loss. The key to staying in the black is a combination of luck and market knowledge. If you try and rely on luck alone, or simply your “instincts” regarding good stock, you’re likely to fall into the same money pit that many have found themselves marred in.

What can you do in order to safely invest and grow your savings? Here are three market investment tips for beginners.

1. Avoiding Extra Frictional Expenses

Warren Buffett once wrote in a letter to shareholders that, “Investors should remember that excitement and expenses are their enemies.” Part of the expenses he is referring to here is what is known as “frictional” expenses, the most common of which are brokerage commissions and fees. This is something you have to keep in mind when you place a trade, since the commission rate can eat into your potential profits. A fairly average commission rate for a $2,500 trade of 1,000 stocks or less might be about $30. These fees can add up over months and over years to hundreds of dollars.

2. Stock Market Investment Advice

When you’re starting out, you don’t want to lead in with too much risk, or place too much money on the line. You’re likely to make some mistakes in the beginning and it’s better to limit the impact that can have on your finances. For beginners, market orders are the most simple and common type of trade you can place with a broker. They usually have the lowest commission prices, and you agree to pay the price that was presented to you during the order execution. It’s a good idea to start off by placing limit orders. These orders will prevent a trade from occurring if the stock price goes over or under what you are willing to pay for it.

3. Stock Market What to Invest In

Virtually all stock market guides will advise investing in a wide variety of stock types so that if one market crashes, you won’t be stuck holding the short stick. Look for companies that have had stable overall growth over the past few years, and pay attention to industry trends. Many energy companies are not worth much now, for example, but are often a promising investment because of potential returns in the future as the U.S. will presumably funnel more money into exploring alternative energy solutions. There are many online sites available now to track this sort of information. Crocs has been making waves this week, as its stock prices are up almost 20% following a recent investment.

Do you have any market investment tips? Let us know in the comments. Learn more:

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