Investing in stocks is one of the most popular ways of growing wealth although not everyone knows where to start. Here we show you some simple steps to take on your quest for wealth accumulation from a stock investment.
1. Select your investing style
There are different approaches to investing in stocks as follows:
• You can choose to go it alone and invest in your own selection of stocks, in
• Hiring a broker is another way of entering the stock market although the difference is that you don’t have to learn any additional skills.
Once you have decided which approach you want to take, you can move on to the next step.
2. Open an account
Before you can start speculating and investing in stocks, you need to open an investment account. For DIY investors this will be an account with a broker who can execute your trades. You can do this in either of two ways:
• An online broker is more likely to offer the quickest and cheapest way to investing in stocks, funds and other instruments. You can opt for an IRA account so that you can start building for your golden years or choose a taxable brokerage account if your retirement savings are already taken care of.
• Use an online adviser such as TheStockDork to educate yourself as much as possible on the markets you want to invest in. You’ll find it much easier to develop a strategy with professional guidance that helps you achieve your investment goals.
3. Know the difference between stocks and stock mutual funds
There is no need for stock investing to be over-complicated as there are generally two types of investments people tend to opt for:
• Mutual funds or exchange-traded funds (ETFs) which are comprised of several different stocks in one transaction. Index funds and ETFs generally track an index in terms of performance such as the S&P 500 fund which replicates the stock of all the companies listed by the exchange.
• Individual stocks or equities in specific companies which you can generally buy from a single share to several depending on your risk appetite. This is the more complex route to take as you have to know the market and performance indicators for each individual stock you invest in. Many stock investors diversify their holdings so that the performance of one company is countered in some way by another correlating stock.
4. Set a budget
Many new stock investors often have the following considerations for this step:
• How much money they need to get involved in the stock market, which depends entirely on the share prices at the time of investment. If you have a smaller budget, ETFs are probably a better choice as you can get a “bundle” of different stocks in units from around $10. Mutual funds require a minimum investment of at least $1,000.
• How much investment capital should be used to buy stocks? When you invest in funds, you can allocate quite a large portion of your portfolio towards stocks because the assets held will be quite diversified. If you are choosing individual stocks, you may want to look at different sectors but keep a tighter rein on a budget as they are less diversified holdings.
5. Start investing
Once you have thoroughly considered your investment objectives and which way you want to invest in stocks, the next step is to get going! It’s best to start small if you’re a DIY investor and focus on stocks you understand. For example, many people fall into the trap of thinking that tech stocks are a good bet. This is often true although it isn’t always the case and you really need to understand the technology underlying the stock and whether it’s a value-growth opportunity.
If you are investing in individual stocks, you’ll want to take a closer look at what is underlying the share you’re holding. Although it takes time to quickly recognize the growth areas in the stock market, you can get a feel for what’s hot and what’s not from a wealth of online resources. Remember to take a look at past performance of stocks you’re investing in as they usually indicate how robust a firm is in various market conditions.
The Bottom Line
Although stock investing has its complexities, it is an engaging way of investing your personal capital. That said, you always have to be aware that markets can move upwards as well as downwards and you have to be able to weather the storm. Only invest money that you can afford to lose when you deal in stocks as otherwise it is easy to get emotionally involved in your deals and that’s when mistakes are made.
The reason many people prefer to use as much online assistance as they can with stock investment is that of the risks involved. Even the most seasoned investors make mistakes and it is completely against the laws of probability that your shares will all increase in price while you hold them. The best strategy to have is to be as detached as possible from your trades so that you’re not constantly monitoring stock prices.
Ultimately, investing is another form of gambling which carries significant risk. The way personal investors can mitigate this risk is be researching the market thoroughly and researching performance indicators of individual stocks. Knowledge is power and really that’s all you have working for you when playing the stock market as it is just impossible to predict the future.
Stock investing can not only be compelling and engaging but also extremely profitable. There is no rule book or one single proven strategy that yields success which means that it is possible for anyone to accumulate wealth by astute investment in the stock market. When you think about it, even the most famous investors in the world had to start somewhere and they inevitably started small.