Stock investing can sometimes seem quite mysterious, so much so that it often feels like a quest. You have to survive all the obstacles, and you have to use the right language. In addition to that, you also have to make sure that it stays available for valuable members only.

Inexperienced investors can easily put the entire industry in danger. However, most of the time they are a danger to themselves. Because of that, there are regulations that protect them so that they don’t get cheated out of their money. And, those regulations usually work well.

Nevertheless, when it comes to investing, a small group of people is the one that’s benefiting from your ignorance. Those are financial advisers, brokers and others who want you to ask them for advice – and pay a substantial fee for it.

Therefore, to help you, we’ve compiled a list of things you should know about investing. These facts will also help you if you are investing to save up for your retirement.

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1. When you buy a stock, you buy the company as well

You’ve read that correctly. However, don’t get excited too soon. When you buy the stock, you are also getting more responsibility. The company has to inform you about all material changes that happen to it, but you also have to read about it and make your own judgment.

2. There are two ways you can profit

You might think that the only way to profit is by buying a stock at a low price and selling it for a higher one in the future. That’s called capital appreciation. However, you should know that there are also dividends, and they can be an excellent source of income. Combine that with the capital appreciation, and you have a thing called “total return.”

3. The stock value goes up and down

Never forget one simple fact: what goes up can eventually go down. And, let us remind you that going up serves no purpose if it doesn’t beat inflation. So, if you are planning to limit yourself to just one approach – think again. For example, value investing is when you buy a stock for a seemingly depressed price. Meanwhile, momentum investing is when you buy a rising stock and hope everyone follows your lead. These strategies can sometimes work, but the timing has to be perfect.

4. You cannot avoid taxes

Unless you have a qualified retirement account with stocks inside it, you will have to pay up for every gain you have and for every dividend you receive. Therefore, your total return has to go above the taxes and the inflation.

5. Volatility is a real thing

In contrast to No.3, here we’ll mention a thing or two about volatility. Whenever a security goes up and then drastically down – that’s volatility. It often happens to stocks, and it’s a fast movement on the market. Unlike bonds, stocks are rather volatile, which is why they can rise in value over long periods of time.

Lastly, the final thing you should concentrate on is diversification. Most companies thrive over the years. However, if you own a significant amount of stocks in a soon-to-be disaster company, you will lose everything. Therefore, it’s best to diversify and hold a variety of individual stocks. That way, you can protect yourself from bankruptcy, and you will be less affected when a company goes under.

Did you ever want to learn how to make money from investing in dividend stocks? Well, we are here to give you a quick walkthrough that will help you find dividend growth stocks that are safe picks. So, let’s jump right into it.

What is the first thing you should focus on while evaluating a dividend stock? Well, we would recommend focusing on the sustainability and viability of the dividend.  The primary focus should go straight to having secure payments every year. No matter what happens during the year, your payment should be safe.

And, to keep up with the payments, the company has to have a steady cash flow. Logically, lack of it poses a danger to a dividend. If the company’s cash flow is weakening, one of the first costs that will be cut down will be dividends. And the last thing you want in your portfolio is a dividend stock that is failing to pay dividends. That is something that happened to several companies in the energy sector. Chesapeake Energy and Linn Energy both had to remove dividends altogether.

So, what do you need to do to locate a “safe” dividend? Well, checking the cash flow is the most important thing to do. Try to find a company that can afford to cover the payments at least two times over. Some companies are willing to sustain dividends and go into debt, but that is not a sustainable practice.

You should also check the dividend history of the company. Of course, there are no guarantees, but a lot of companies have made it into a habit to raise their dividends each year.

And lastly, it is always a good idea to check if the yields are trending upward, especially if they are nearing the all-time high.

Of course, you are going to want to run some analysis tools. Mainly, most of the basic research that you would use while picking regular growth stocks applies. However, you should add a layer of analysis that focuses on fixed income.

As a dividend stock investor, you should focus on the outlook for the company rather than on individual trades. Not to mention that you should always consider long-term positions. And this is where the difference lies. Most retail investors would tell you that a long-term position is a position you hold for a month. Not for you. The minimum period for holding a dividend stock in your portfolio is a year. And you should usually plan to hold it for a lot more than that.

The drops in the value are also not as critical as they are with regular stock. For example, if the stock falls from $60 to $55, that is not that big of a deal as long as there are no fundamental changes. The dividend is there to cushion the losses and make it a lot easier for you to ride out the low.

Now, we should probably strengthen our understanding by going through some of the concepts of dividends.

We should start with the fact that they are usually paid quarterly, and can be adjusted at every interval, which means that the dividend can grow, fall, or straight out disappear at the interval. That is why you should look for a company that raises the payout consistently.

Now, we should talk about the yield. If you have ever heard someone say that a particular stock comes with a dividend of 5%, they were talking about the yield. The yield is a ratio of the payment the investor gets every year from the dividend stock.

The next factor we will mention is the ex-dividend date. Essentially, this date is the cutoff for the interval payment. So, if you want to qualify for the period dividend, you should make sure to make your trade before that date. So, if you see a share that opened slightly lower than usual, it could be due to the ex-dividend date.

You should also remember that you might have to wait for four weeks after this date to receive the payment. That means that if you sell your shares before this date, the one who bought the shares will receive the dividends. However, if you sell them on the ex-dividend date, or even after, you can still receive the payout. Of course, you should hold the position for a lot longer than weeks, but if you are looking to sell, this tip might get you a bit more money overall.

It’s often said that the masochist and the optimist are way more similar than one would have thought. Individual investors often find themselves wondering which one they resemble more.

Even those who consider themselves optimists have to admit the following: investing won’t be easy in the next couple of years. According to Ralph Wanger, ACRNX’s manager, a period of fairly tough markets is ahead of us. Only those who have substantial skills are going to prevail.

If you are still here, reading financial publications, then the mighty market hasn’t scared you away. That’s great news since stocks remain every investor’s best bet for the long run.

Jeremy Siegel stated that the best bull market ever lasted from 1982 to 2000 when real returns were around 15.6% a year. When you compare that to the historical rate of equity returns, that’s more than double. Regression hasn’t been enjoyable.

But, you can still make money. It’s just that the rules have changed, and some tried rules have become vengeful now. It’s better to throw the old playbook away and adjust to recent changes. Long-term investors can succeed with the help of the long haul in the new era, regardless of possible market changes.

Firstly, let’s go over the rules of the game.

Know Yourself

Numerous investing strategies exist – deep value, active trading, buy and hold, index investing, etc. Before doing anything else, investors should determine which type exactly they are.

According to Michael Mach, EHSTX’s manager, to be a long-term investor, you have to know yourself. He claims that the key is to combine a rational investing approach and your personality. A consistent application will result in success.

If you don’t mind taking a large risk, and you can keep your cool in periods of great volatility, you can probably handle a risky strategy. As the majority of investors start to lose their cool, the long run often focuses on strategies designed to avoid excessive risk and marketing timing. Instead, longer time horizons and fundamental analysis are favored.

One more thing, be honest with yourself. You have to know how much time you will sacrifice to track your investments. For example, avoid taking big stakes in a couple of companies in the quickly-evolving biotechnology industry, if your plans don’t include keeping up with sector development.

Diversify

When it comes to investing, diversification is in all likelihood the simplest truth there is. Also, it is most often misconstrued. Back in the 1990s, asset allocation used to mean 100% stocks for many people, and around 90% of those stocks were large-cap growth.

Basically, all investment vehicles experience ups and downs. But, a large number of individual portfolios are made of holdings that all move up at the same time and then go back down again at the same time.

The founder and CEO of Legend Financial Advisors, Louis Stanasolovich says that investors need diversification. By that, he means that they need to diversify away from large-cap domestic equities. According to him, when you buy two Janus funds, three Fidelity funds, American Funds Growth Fund of America, and an S&P 500 index fund, that’s not diversification.

In order to achieve true diversification, investors have to assemble portfolios by using investments that have lower correlations to one another. Here’s an example: for equity holdings, you should consider paring back your large-cap weighting and improving exposure to international stocks, emerging markets, real estate investment trusts, and smaller-cap stocks.

The Reinvention of DIY Investing

One of the supposed hallmarks of the bull run from the 1990s was the rise of the DIY investor. When the stock market bubble collapsed, some experts declared the DIY movement dead.

There’s a lot of irony in that. Investors got over their heads in the recent years mainly because the notion of DIY investing was cast aside, or just poorly redefined. DIY investing isn’t just reading The Wall Street Journal or watching business news, listening to analysts or getting inside tips from your broker; it’s much more. It requires hard work and doing your research before making any decisions. If you just buy a stock that someone mentioned on CNBC, that isn’t doing it yourself.

To reinvent DIY investing, remember what Peter Lynch said in 1989. He advised investors to stop listening to professionals, ignore the recommendations of brokerage houses, hot tips, and suggestions from their favorite newsletter, but do their own research instead.

However, this doesn’t mean that one should disregard all stock analysts, mutual fund managers, business news experts, etc. There are various trustworthy and intelligent people who can help you become a better investor. What’s more, countless are at your disposal in the Internet age. To put it simply, trust people, but verify. These resources should help your research, not replace it.

Passion For Investing, Not Investments

To become a successful DIY investor, one will need plenty of fundamental analysis, analyst reports, going over company statements, and online and offline research. Passion is a must. However, try not to be too passionate about your investments. Fear and greed are not great emotions to be driven by, at least not when investing. So, focus on being unemotional about your investments.

Emotions shouldn’t get in the way, that’s a common truth. It is even more important to remember this during unstable times, when there are a lot of sudden moves on the market, and no sustainable upward trend. Remember to stick to your guns, don’t just follow blindly.

In September 2002, many people thought the world was coming to an end, and wanted to sell everything. Then, in October, tables turned, and they wanted to buy everything. Neither of these two ideas proved to be sound.

The New Era

Let’s take a look at the market peaks of 1929, 1966, and 2000 to get a sense what the new era could look like. It wasn’t until 1954 and 1982, respectively, that stocks returned to their previous heights. Take inflation into consideration, and that’s 1955 and 1994, according to Wanger.

We can’t be sure if another quarter of a century will be needed to get back to the levels from March 2000. Either way, investors have to realize that getting rich quickly isn’t the right recipe for success in this market. Also, overburdening technology isn’t the best idea either.

When the energy bubble burst in 1980, here is what happened to the energy sector. For energy stocks, it was the best of times and then the worst of times. Similarly, technology stocks suffered, and they may keep sliding.

However, this shouldn’t make you avoid all tech stocks. Companies like eBay and Qualcomm managed to keep record earnings and revenue growth during the industry’s worst downturn. In the meantime, giants like Microsoft have made themselves more appetizing as stable performers by ushering in dividends. That, would, however, go against all bubbles in the 20th century, in case tech was to recommence leadership in the new era. In order to stay safe, keep technology light.

Nobody can know for sure what the next decade holds. Also, it’s impossible to say if stocks will experience a fourth down year in a row for the first time since the Great Depression. If we rely on the post-bubble history as an indication, quality companies could outperform.

Marshall Acuff, the founder of AMA Investment Council, says that everyone should stack as many things in their favor and cut down speculations to a minimum. What’s important is the price, a clean balance sheet, a dividend-paying stock, and a high rate of return. He also says he’d keep his growth, as well as valuation/risk growth expectations conservative. Being in a hope category isn’t a great choice.

The 7% Solution

It’s natural that expectations get out of order with the 18-year run of 15.6% returns. Over a very long haul of 200 years, stocks return around 7%, according to Siegel’s research. Both companies and individuals could anticipate the broader market to give back the historical average over the course of their investing lifespan.

However, don’t expect double-digit returns or you’ll be disappointed.

When you get your expectations right, you will realize that 7% returns aren’t that bad. Your money will double every 10 years. Those who aim for a more sensible 7% return are less prone to digress from the investing game rules. Lower your expectations, and it will be much easier to be an optimist, rather than a masochist.

As this text column started on a negative note, here’s a bit of cockeyed optimism for the end: The 2000s decade may be the same as the 1930s, meaning the worst for investors.

There was only one decade when market averaged a loss was (from 1930-1939), resulting in a negative 0.05% average yearly return. So, how is this exactly good news? Managing director at Eaton Vance, Larry Sinsimer, draws attention to the fact that the average annual market return has been a negative 14.5% this decade. Thus, to equal the 1930s, the stock market will need to give back 5.6% per year on average. In order for a decade to have a flat return, the markets would need to give back 6.5% per year.