There’s a nice simplicity in the old mantra about making money in the stock market: Buy low. Sell high. That’s as simple as it gets. Unfortunately, putting this rule into practice isn’t nearly as simple. The reason? The stock market is volatile and most of us dont know how to invest in it. Sure we may have a retirement account or a Roth IRA but that doesn’t mean we know how to work with the swings the market takes. Just because a stock has soared during the last three months doesn’t mean it won’t tank immediately after you buy it. And once it tanks, there is no guarantee that the stock’s value will again rise. There’s that other important rule regarding the stock market, too: Past performance in no way indicates future value. Just because a stock has been hot for a long time, doesn’t mean that it will continue to perform well in the future.
That’s why the best stock market investing strategy is to take a long-term view. This means that you shouldn’t try to guess which stocks will rise and which will fall. Sure, you can read plenty of predictions online from financial experts and analysts. But there’s no guarantee at all that these experts will be right.
The sad truth is this: No one can predict the performance of either a single stock or the entire stock market. It’s simply too volatile of an investment. People who tell you that they can are like those radio sports bookies who tell you that they can predict the winner of tomorrow’s football game: They’re either lying or they’re deluded.
When investing in stocks, it’s best to do your research beforehand. Read as much as you can about the company behind the stock. Find companies in which you believe. Then invest in them for the long haul. If their stocks take a slight tumble, don’t panic and sell. If they rise in value, enjoy the ride. Investing in stocks is a bit like investing in residential real estate. You have to be patient to have a shot at solid earnings.
The numbers bear this out. Most investors will make a solid profit if they keep their money in the stock market for a long enough period of time. That’s because historically, the stock market usually rises if you only look at seven- to 10-year periods. Yes, markets will take big falls, such as during the country’s recent Great Recession. But the market always bounces back. We’re seeing that now.
So don’t try to predict the next big stock trend. Don’t move your money back and forth between stocks in a frenzied attempt to guess right on the next big deal. Be patient. Invest in stocks in which you truly believe. And don’t withdraw your money too quickly. By following this advice, you’ll watch as your stock market investments steadily grow.