Stock Market Investment 101

Stock market investment is never easy and always involves some degree of risk. Knowing about the current markets and their respective fluctuations certainly helps, but there's no guaranteed way to make money through stocks. For this post, I've put together the most important guiding principles that you should follow when investing.

1. Invest long-term
Market analysts will tell you that the average change in stock market gains is about +10% per year, with a standard deviation of 20%. What does that mean? Basically, on average, stocks go up. The standard deviation part means that while you will gain 10% of your investment on average, you'll sometimes gain less and sometimes gain more. Sometimes you might even lose money. So the stock market is relatively unstable on a year-to-year basis, but if you invest long-term, you can almost guarantee a positive return.

2. Have a diverse portfolio
This goes hand-in-hand with principle #1. Having a diverse portfolio basically means buying little amounts of lots of stocks. Because some companies will inevitably lose money, having a diverse portfolio insures that you still have money in businesses that are growing.

3. Invest in companies you know
You'll hear this a lot, but it's actually less important than principles 1 and 2. Generally, it's smart to invest in companies that provide services and products that you have experience with. If you know a lot about computers, you might consider investing in companies like Apple or Microsoft if you think that whatever new product they have coming out is going to be a success.

The last thing to remember about stock market investment is that it requires that initial leap: you have to spend real money at some point. Doing fake stocks on Facebook will never earn you any real cash.