First time investors are understandably intimidated when they consider investing a portion of their savings in stocks instead of keeping it in the bank. A little bit of research, however, shows that long term returns on money invested in stocks far exceeds the return earned on money kept in a bank. Keep reading to learn some tips for successful first time investing in the stock market.

Establish a Long Term Investment Mentality

Over the past century stocks have widely outperformed every other asset class with a return of about 10 percent a year. This does not mean that stocks will consistently deliver gains year after year. Although there are more up years than down years for stocks there will be years during which stocks will experience double digit declines. There will also be periods of time during which the market stays flat for an extended period of time. Successful investing requires a long term investment horizon in order to reap the historical returns provided by stocks.

Evaluate Your Ability to Tolerate Market Corrections

You have taken the plunge and made an investment in high quality blue chip stocks but suddenly your investment portfolio is down by over 20 percent and you are wondering how much more pain you can take. Psychology studies show that the pain from a loss of $1,000 is twice as high as the satisfaction from a gain of a similar amount which perhaps explains why many investors wind up selling out positions at market bottoms. No one enjoys seeing a portfolio drop in value but if you are not psychologically equipped to handle a loss of 20 or 30 percent without getting panicked into selling stocks are probably not for you. Successful long term investors understand that markets can sometimes sell off sharply and also have the ability to add to their stock portfolios when stocks are on sale.

Minimize Investment Fees

Over time excessive investment fees can dramatically reduce your returns. The purchase of an individual stock involves only a small commission at the time of purchase and again when sold but investments in mutual funds or ETFs involve ongoing fees for fund management and trading costs. Regulators requires that the fees charged by every mutual fund be disclosed. The amount of expenses charged by different mutual funds can vary considerably and have a large impact on investment returns over time. For example, a $50,000 portfolio invested in a high cost mutual fund that charges about 1 percent more than a low cost mutual fund will be worth almost $7,500 less at the end of ten years assuming the same annual return for both funds. Large investment companies such as Fidelity, Schwab, and Vanguard offer many funds with very low expense ratios and performance records that often exceed that of funds charging higher fees.

Don’t Panic During Market Crashes

Market crashes are an unavoidable event when investing in stocks. Over the past three decades there have been two major market declines that can only be described as crashes and many investors panicked and sold out at the bottom. In hindsight, the market crashes of 1987 and 2008 turned out to be two of the best buying opportunities in history. When markets tank, first time investors should keep in mind the words of Warren Buffett, the most successful stock investor of all time, who tells us Be fearful when others are greedy and greedy when others are fearful.

Stock Diversification Is Essential