If you’re new to investing or thinking about investing in stocks short or long term, you’ve probably heard of Robinhood – a free to download no trading fee app. I cover common mistakes to avoid when you’re just starting off .
NOT ADDING MONEY TO YOUR ACCOUNT IN ADVANCE
The most important thing to realize with stocks is that their prices fluctuate every second and by the time you decide to purchase something, it can change. Hence, adding sufficient funds before you start investing is very important.
Once you create your account, link it with a bank account and have decided how much you wish to invest (I recommend atleast $100), follow the following steps:
Account ->Transfers -> Transfer to Robinhood
You have the ability to “Schedule Automatic Deposit” but for now, I’d recommend not to enable it unless you know what you are doing.
It can take upto 3 days for your money to be transferred from your bank account to Robinhood – do not buy stocks until you have the sufficient funds to buy them in the first place.
AVOID BUYING STOCKS IN REAL-TIME
Given that there is a delay in when you saw the price, selected how many stocks you wanted and then proceeded to make the booking/purchase, the final price (while changing constantly) might be different that what you had initially observed/forecasted.
When you are ready to “Trade” and buy a stock, you ideally want to select “Order Types” in the top right hand corner of the app. Here you’ll see the following options:
|Market||Buy at current rate – I’d recommend staying away from this|
|Limit||Specify the maximum amount you’re willing to pay per share|
|Stop Loss||Set a price above the current price that converts to a “market” order|
|Stop Limit||Set a price above the current price that converts your order to a “limit” order|
|Get Free Options Trading||I’d recommend staying away from this if you’re a beginner|
You can learn more on Order Types from the US Securities and Exchange Commission here.
I personally use the “Limit Order” because I can tell Robinhood only to buy a certain stock if it is at a certain price or lower. You then have the option to set the trade for the current day or for it to be valid for upto 90 days. Do no however, this is reduce your “buying power” for future stocks as the amount you set is temporarily locked away (it can be cancelled if you no longer wish to make the trade before it occurs).
CHECKING PORTFOLIO ALL THE TIME
You should be honest with yourself and determine a target and how long it should take to get those expected returns. You should also be prepared to lose some money on bad days while you make money on good days – it’s a part of investing. If the plan is to buy and hold stocks long term (say three years), then checking on them every moment may not be the best approach here.
If you are however worried of losing too much, you can setup a “Stop Loss” Sell Order so that Robinhood automatically sells it if the stock starts to tank and you are unable to get to it in time.
Another advice to monitor your stocks outside of Robinhood would be to set-up stock alerts (especially the ones you’re invested in) on your android or apple device with the automated assistants.
BEING IMPATIENT AND EXPECTING QUICK/EASY RETURNS
If stocks grew 5% everyday, everyone would be rich – but that isn’t the world we live in. Market performance of stocks depends on multiple factors and also considering the human factor, there always exists a bit of uncertainty.
If you’ve created a strategy to invest in blue-chip stocks or ETFs or Index Funds, you need to give it time to bare fruit. If you have money laying around that you aren’t using and you want to jump immediately on something you see is growing, take a step back, breathe and do your research. It always seems like we aren’t invested in places which are growing but rely on your research and you’ll be fine.
If a stock falls one day, don’t rush to sell it as the markets in general could be down due to a political shift but they’ll soon bounce back up and you’ll regret that decision (I’ve been there and trust me it felt rather stupid).
You can setup “Limit” buy and “Stop Loss” sell trades if you have a game plan in mind and feel like the market may be headed in the same direction.
NOT DOING ENOUGH RESEARCH
It is highly important you not buy into a stock just by looking at it’s historical performance graph and the Price to Earnings Ratio or the high/low 52 stock price. There’s a lot more to it than just those statistics and the more you read, the better educated you are at making a trade.
Not all stocks will perform the way they used to – some might grow due to positive news and some might fall due to negative factors – the more you read and subscribe to updates, the better off you are long term.
Most of you may have heard “buy low sell high” but to ascertain when the stock is dropping price and when it will increase (and how quickly) you need to be well versed.
Popular places to research stock price history and performance are Yahoo Finance, Marketwatch and Google Finance amongst others. As you progress in your investment journey, you’ll discover better – more insightful places for information.
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Whether you’re already investing with Robinhood or are thinking about it, I’ve tried my best to cover common mistakes to avoid so that you don’t end up losing money. Investing is challenging but it’s the work you put in today for a better future tomorrow that adds the real value to your net worth. Remember, you do need to file losses/profits in your taxes and avoiding those can lead to heavy penalties in future IRS audits.
You are one player in this game of trillions of dollars but that doesn’t mean you can’t make a strong portfolio as per your requirements and returns goals.
If you’re new to trading and wish to start investing with no trading fees/payments, signing up through your mobile device by clicking the button above and get a free stock (such as Apple, Facebook).