Seven Investment Tips for Investing in the Stock market

canstockphoto7928677Good financial planning is one of the most important factors that will decide your future happiness. If you make better investment decisions, your portfolio will grow with time, and help you in your retirement, or in accomplishing future goals. However, if your decisions are not too sound, your invested sum can go southwards, bringing loss and heartache. Therefore, we bring you seven investment tips that should help you make better investment decisions when investing in the stock market.

1. Investment is for the Long Term Analysts have found that the stock market invariably beats returns from bonds or savings account, but only in the long term. So if you want to get the benefit of investing in the stock market, you have to remain invested for the long term; which normally means more than fifteen years.

2. Plan your Taxes before you Invest when Investing In many countries, the tax code allows rebates and concessions when the investments are done in specific types of investments, such as mutual funds with long term horizon. Therefore, you should plan your investments so that you get the most tax benefits. For example, in Australia, dividend income from shares is assumed to have already accrued a taxation of 30 percent. So, as long as your income tax rate is 30 percent or less, you do not have to pay any income tax on your dividend income from shares.

3. The Importance of Diversification Diversification is known to reduce the risk of big downfalls in value of a portfolio. If you are invested in just one stock, it can fall more than 90 percent in one year. But if you are invested in 10 different types of stocks, the likelihood of all of them falling simultaneously is almost negligible. Therefore, diversification reduces the risk of big losses, and should always be adhered to.

4. Research extensively and Do your Homework Before investing in a company, make sure that you read its financial statements, reviews and other appraisals of the company from major brokerage firms. This way you can make a more informed decision about investing in that company. Further, you should be aware about the general direction of the economy, or the sector in which a company is active in.

5. Cash Out if you have Met your Target Whenever you invest, you should invest for a particular target. Once you reach such a target, it is wise to cash out, rather than be more greedy for more profits. This is because a target is arrived at by using a system or process. If you overshoot that target, then you are not following a system, you are just playing the market, and that is not what investment is about.

6. You are an Investor and not a Trader A lot of literature on the subject of investing in the stock market is actually about trading in the stock market. Many analysts and commentators routinely talk about short term horizons of a few days and weeks. This is not investing, but trading in the stock market. The difference is not just in the time horizon, but the goals. Investment is supposed to be more scientific, and researched, whereas trading is more of a game. Which is why you should avoid the latter.

7. Invest in Different Markets And we are not just talking about the fast growing Asian markets. If you are not an Australian, you can invest in the Australian stock market to diversify into another developed economy. For share trading Australia is comparable to United States and Europe in the type of strong regulations they have, but their results are slightly different than these two markets.