Are you planning to invest, but you feel intimidated by the technicalities involved? Worry no more, as you've come to the right place! Educating yourself on where to put your money is the first step to a successful investment.
Investing comes with risks and uncertainties. However, starting somewhere is a must. Even the most iconic investors that you look up to had to start from scratch, which is learning. So let's lay the foundation and start your investing journey.
What are Stocks?
A stock or share is a financial instrument that represents ownership in a company or corporation. It represents a proportionate claim on the company's assets (what it owns) and earnings (what it generates in profits). Stock ownership implies that the shareholder owns a slice of the company.
Now, your slice is equal to the number of shares held, in proportion to the company's total outstanding shares. For example, an individual or entity that owns 1,000 shares of a company with 10,000 outstanding shares would have a 10% ownership stake. Just know most companies have outstanding shares that run into the millions or billions."
In layman's terms, stocks are a way of building wealth. This means that you invest your money in a company's shares issued in the stock market, thereby becoming an owner. It's that simple! Individuals invest in stocks of successful companies, while for companies, this is a way of raising funds.
Even after investing in a company's stock and being an owner, you don't have to participate in the daily affairs of the company. However, you maintain your right to vote in meetings if you choose to. Most investors hardly attend meetings or vote. Their primary aim is to earn from their investment, which may be achieved in two ways:
- Share dividends paid from a company's revenue.
- Profit from the sale of appreciated shares.
How Stocks Work
Companies need funds for growth investment, new product launchings, and expansion. Issuing shares is one of the ways companies meet this need, and that's where you, as an investor, come in.
When shares are issued in the stock market, they can freely exchange hands amongst investors. Therefore, the inconvenience of getting stuck with a non-performing investment is eliminated.
Steps for Successful Investment in Stocks
The following thought through steps provides a comprehensive guide to existing investors.
Determine your Goals and Risk Tolerance
Set realistic goals and avoid comparing yourself to already successful investors. However, emulate them and let them hold your hand in this journey.
Risk tolerance is critical, as it's the ability to withstand losses when your investments perform poorly. Ask yourself…how much of a drop in the market can I stomach? If your tolerance is low, you should consider a conservative investing approach. For example, a greater portion of your portfolio might be in low-risk bonds and a smaller portion in higher-risk stocks. Knowing your risk tolerance helps create a game plan, which will, in many ways, lead your investment journey.
Risk tolerance is critical, as it's the ability to withstand losses when your investments perform poorly. Ask yourself…how much of a drop in the market can I stomach? If your tolerance is low, you should consider a conservative investing approach. For example, a greater portion of your portfolio might be in low-risk bonds and a smaller portion in higher-risk stocks. Knowing your risk tolerance helps create a game plan, which will, in many ways, lead your investment journey."
Research and seek advice on the best brokers before risking your hard-earned cash. Once satisfied, open a brokerage account with the best stock investors in the market.
Choosing of Account
To invest in stocks, you need an investment account, and there are different types to choose from. For the hands-on investor, this typically means a self-directed brokerage account – this is where you control your future earnings. Other investors might seek assistance through a Robo-advisor. Each is an option, as both allow you to open an account with very little money. However, an online brokerage account likely offers your swiftest and least expensive path to buying stocks, funds, and other investments. Just remember to evaluate costs (trading commissions and account fees), investment selection, and investor research tools when evaluating your broker of choice. With a broker, you can open an individual retirement account (IRA), a taxable brokerage account, or even a custodial account. Yes… it's a good idea to start your child's investment journey early. If your child has no taxable income, consider opening a custodial brokerage account under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act."
There are different accounts investors can choose from. Compare costs associated with each account and opt for the one that meets your needs. Most firms have accounted for children; thereby, you can choose to make a future investment for them.
The stock market is associated with risk. Never risk more than you can afford to lose. Research shows that investors who start small have a higher chance of growth than investors who start big.
Invest in What You Understand
Choose your stocks wisely to avoid disappointments. Thus, a great way to start is by evaluating where you spend your money. Is there a particular service or product you find yourself regularly purchasing? Do you have a keen interest or above-average knowledge of the automotive, video gaming, or any other industries? Take time to evaluate your answers to each of these questions."
Hire the services of a reliable investors advisor who will recommend how to diversify your portfolio.
Now it's time to do the research, as you want to develop an intimate understanding of the companies you choose to invest in. Remember…when you purchase a slice of the pie, you're instantly a proportional owner of the company – it's important to understand where you place your money. Educate yourself by visiting the company website, reviewing the financial statements, and reading various articles to determine if the company is worthy of your investment dollars.
Know When to Buy or Sell
Buying low and selling high is a fundamental rule of investing. However, many fall victim to the herd mentality. This means purchasing or selling with the herd. Take a moment to imagine a herd of elephants running wild and the resulting effect – I'm sure you get the point. This is why it's important you do the homework and identify what you believe the stock is worth (a stock's price target). Aside from doing your research, relying on analysts' price targets or the recommendations of financial newsletters can be good starting points, as long as you remember, these are only the opinions of others. Knowing when to buy or sell is a personal decision, made easier when you've done the homework and continue to educate yourself upon your current or future company."
Selling when prices go up and buying when prices go down is the fundamental law in any investment. Keep on educating yourself on the performance of the stocks you've invested in to know the right time to buy or sell.
Conclusion
Investing in the stock market has contributed to generational wealth for numerous families. If they're willing to set aside the time, why should it be any different for you? The key is getting started, so use the above steps to start or improve your investment journey."
With the above easy steps, anybody can invest in stocks and make good returns.
If you plan to invest, or you're already investing in stocks, but need more advice, feel free to contact us today, and we will be more than willing to assist.