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Thinking of Getting into Retail Investing? Here Are 7 Things to Consider

This article originally appeared on and has been republished here with permission. 

In the wake of the Covid-19 pandemic, the world of retail investing has experienced a growing number of new arrivals looking to place their money in the stocks and shares that they believe in.

Emotional investments and allowing fear or greed to control decisions can lead to clouded judgment in the investing landscape. In these cases, it’s vital to look at the bigger picture–stock market returns may debate significantly in short-term waves. However, the historical returns for large-cap stocks can average 10% over longer-term scales. 

(Image: Financial Times)

As the data above shows, increasing volumes of retail investors have led to unprecedented levels of option trading–with over 40 million contract calls being taken out in February 2021 alone. 

(Image: Financial Times)

Despite more retail investors entering the market in the wake of the pandemic, the fluctuating trading themes in the chart above shows that many are still struggling to settle on a place where their money is best invested. Although ETFs have seen the largest volume of net purchases taking place over time, meme stocks, ESG stocks and growth stocks have all risen to the fore in recent months respectively. 

The world of investing is a tremendously rich and diverse place, with countless opportunities for individuals to grow their wealth. 

1. Avoid Falling in Love with a Company

One of the most significant issues that retail investors can face stems from allowing their emotions to control their decisions. They can make investments in a company with healthy fundamentals, experience impressive growth, and build too much of an emotional connection with their stock to pay attention when the fundamentals change and their holdings start to decline. 

Keeping vigilant, and regularly zooming out to see the bigger picture can pay dividends when it comes to investing – particularly in companies that you feel yourself developing a rapport with. 

2. Lack of Patience

On the flip side, it’s also vital to avoid falling out of love with your investments early, too. This can cause you to miss out on excellent opportunities simply by believing that you’ve arrived too late, or by getting fed up with waiting for the stock to move. 

By adopting a more slow and steady approach to building your portfolio, it’s possible to yield greater returns over the long term. However, expecting a portfolio to do something that it isn’t prepared for is a path to disappointment. Remember to maintain realistic expectations for your portfolio growth and prospective returns. 

3. “Over-trading”

As we saw in the above chart regarding the rather erratic investment patterns of retail investors, newcomers to the space may well be indulging in ‘over-trading.’

In February, Bloomberg ran an article warning about how ‘bored lockdown traders are a danger to themselves.’ Repetitive position shifting, or hopping from one position to another, is another sure-fire way to kill your profits. Significantly, transaction costs can significantly impact your bottom line – as well as the opportunities for sustainable growth you avoid through jumping out of the long term returns of your investments. 

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