The Beginner’s Guide to Investing

If you're investing while the stock market is volatile, avoid these 4 mistakes

Here's how much the U.S. stock plunge costs the world's richest people
Here's how much the U.S. stock plunge costs the world's richest people

The stock market has been on a wild ride in 2018, offering steep loses followed by gains and, most recently, more losses. And while you can't predict what the markets will do next, you can take some basic steps to make sure you're investing wisely.

That's a sentiment shared by many market experts, including John D. Spooner, the author of "No One Ever Told Us That: Money And Life Lessons For Young Adults" whom Barrons called one of the top 100 financial advisors in America.

In his book, Spooner writes that "there are endless ways to analyze the stock market, its trends, fads and individual companies." And, he adds, there are certain precautions to take.

Don't just rely on algorithms

Formulas can seem attractive but don't swoon too hard for them, writes Spooner. Build real-life relationships and network, too. Spooner takes this tip from Warren Buffett, the chief executive officer of Berkshire Hathaway, who has built a "cult following" over the course of his career.

"Buffett dispenses wisdom wherever he goes," Spooner writes. "He has a cult following not just because he has an outstanding investment record, but also because of his wisdom, experience and counsel.

Warren Buffett bought his first stock at 11
Warren Buffett bought his first stock at 11

"As you get older, you suddenly realize," he says, that you may not be able to go it alone. "You need hands-on advice, not virtually, not by robots, but by real live smart people who consider the best interest of you and your family. Tough to find. But it can be priceless if you do."

Tom Corley, an accountant, financial planner and author of "Rich Kids: How to Raise Our Children to Be Happy and Successful in Life," shares that idea. He spent five years studying the habits of the wealthy and calls this type of networking building "rich relationships."

Don't just watch TV

Using common-sense strategies, instead of merely listening to talking heads, can give you a boost, writes Spooner. When investing in pharmaceutical companies, he says this strategy helped him get ahead.

"We started to buy this group in 2008 on one seemingly easy-to-grasp idea: The demographics of America and the world. With more than 320 million Americans and seven billion people on the planet, no one you and I know will ever be taking fewer pills than they are now," he recalls.

You need hands-on advice by smart people who consider [your] best interest.
John D. Spooner 
financial advisor and author

The pharma industry, "with enormous cash flow, paying dividends equal to or greater than 10- to 30- year treasuries," was an obvious choice, according to Spooner, and it paid off.

"[It was] simple. I [didn't] have to look at charts or listen to talking heads on TV," he writes. "Common sense can give you investment themes if you pay attention to the world around you."

Don't get complacent

Also, Spooner adds, don't get too comfortable in your routine.

He suggests you continuously try to shoot holes in your thinking and actually question, 'Are my assumptions still valid?'

Investing in these stocks would have made you rich by now—here are other ways to invest your money
Investing in these stocks would have made you rich by now—here are other ways to invest your money

"When the public seems to have discovered your theme, then it is time to start slowly exiting those stocks and looking for what's next," he writes. "Let the people who are late for the game get in last."

Don't make rash decisions 

Lastly, if you're thinking of putting some money toward investing, experts suggest keeping a level head. During times of market volatility, especially, think long-term and consider all your options.

While "there is not a one-size-fits-all answer" to investing, Greg McBride, chief financial analyst at consumer financial company Bankrate, tells CNBC Make It, many experts agree that a well-balanced and diverse portfolio will help mitigate risk.

Re-balance your portfolio where appropriate so it includes a mix of stocks, bonds and other securities to lessen the impact of potential loss.

McBride says you'll need patience, too: "The stock market is a long-term investment, it is not a get-rich-quick scheme. You have to have the discipline to hang in there when markets get volatile.

"Over time, you are rewarded for that risk with high returns," he says, "but you [have to] hang on through thick and thin."

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Video by Andrea Kramar

This is an update of a previously published story.

Here's how young people should invest their first $10,000
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