3 Ways to Avoid Losing Money in the Stock Market

I am a do-it-yourselfer. I first started trading stocks in 2008—right before the stock market lost almost half of its value. I put all my savings in the stock market and I found my personal portfolio down by 70% within the first year of trading in stocks. At that time, companies were dropping like flies and the entire market was in turmoil. To re-build my portfolio, I tried day trading, market timing, setting put options to protect from downside loss, investing in mutual funds, ETFs, you name it! Here are three ways that I learned to protect my portfolio from substantial losses.Do Not Day Trade! There are many books, blogs, websites, and pundits that tell you that the best way to get ahead in the stock market is to time market movements and capture many small gains—this is statistically false and near impossible! Most of the proponents of day trading tout a single run of successful trades that made them wealthy. Most of them don’t mention the tax implications of those tiny trades or how there is no set-in-stone system that works for everyone.Do Not Gamble! Gambling in the stock market is when you put all your chips on black 7 (or a single stock). If you win, you win big—huge! But if you lose, you lose everything. A true investment is something that returns your principal plus some gains. Avoid putting all your eggs in one basket and buy many different stocks that have a high probability of long-term success.Do Not Fall for Penny Stocks! Penny stocks are stocks that trade under $1 per share. There is an allure to owning 100,000 shares of something, but just because you can buy 100,000 shares of one-cent garbage in hopes that the stock becomes “the one” that doubles in value, doesn’t mean you should. When you have 10 shares of a $10 stock that goes up by 10%, it gives you the same dollar return as 100 shares of a $1 stock that also goes up by 10%. When digging my portfolio out of a hole, I learned to invest in companies with excellent long-term prospects rather than focusing on the possibility getting rich quick! If you’re a do-it-yourselfer and are trading in the market for the first time, shoot me an email with your contact information and I’ll send you to my Wealth Creation Secrets from time to time. I can be reached at scott@sterlingwealth.net.