Investing in stocks can be quite intimidating for a beginner with no background knowledge. For this reason, our team at EquityplusBD United States decided to share our expertise in the matter of investments and exchange. Our experts made the subject of stock as comprehensible as possible for beginner investors who are trying their luck in the world of the stock exchange. Pick up your notepads and get ready to explore the stock exchange like never before!
Stock investment 101: What you need to know
Before you can understand what stock investment means, you must first know what the word ‘investment’ generally encompasses. Our experts describe investment as an act of purchasing shares of ownership in a company. As someone who owns a share of a specific business, you will also receive some of the profits earned by the company depending on how big your share is.
Once you invest in the stock of a company, it comes with the hope that the business would grow and prosper so you would earn equivalent or higher value than your initial investment. You can also sell your share of the company once the value of the business you invested in is high enough. The rule of the trade is to always buy when the prices are low and sell when the prices are high. This way, you can earn more than you invested.
As a beginner, the best way to participate in the stock exchange is by investing in online investment accounts. You can use these accounts to purchase your shares or stock mutual funds for your portfolio. If you think that you can’t handle your account, some brokerage accounts would help you handle your investments in exchange for fees while you sit back and relax.
6 ways to invest in stocks: Minimal risks, high returns!
Stock investments are one of the most popular ways to invest in the United States. However, despite its popularity, a lot of people still fear it due to how complicated it sounds on paper. While we won’t dispel this fact because stocks indeed have their complexities, we can tell you that we have a way to make it sound easier for a beginner investor.
Our experts here at EquityplusBD, listed down the steps that you can follow to begin your journey with the stock exchange. All of these steps are created with you in mind so it is as comprehensible as they can be. Of course, we do encourage you to practice what you read in this article. After all, stock investment is something that you learn only by experience. It is impossible to capture its depth only by reading. Without further ado, let’s get right into how you can start investing in stocks!
Decide how you want to invest in the stock market
It is common for beginners to think that there is only one way you can invest in stocks, but that isn’t true at all. There are plenty of approaches to stock investment and knowing which option to choose would make your investment life easier and more planned out. Take a look at the different approaches below and see which would fit your investment style:
- Selecting and stocking funds on your own – this is for investors that want to have a hands-on experience with their investments. It’s more like independently handling your accounts. What’s wonderful about this approach is that you know everything that is going on with your investment. However, it’s not a good start for inexperienced investors.
- Selecting an expert to handle the accounting process is the safest option for beginner investors since it requires minimal effort on your end. All you have to do is pay the fees of the expert you’ve hired and they would manage your account for you. The only downside of this is that you would be blind to some of the details happening in your account.
- Selecting to invest in an employer’s 401(k) – this investment approach is a mutual fund that offers a safe way for beginners like you to invest with minimal amounts.
Choose an investment account
Before you can start investing in stocks, you must first establish an account. If you want to work hands-on in your account, this would mean the brokerage accounts for you. However, if you want a little help from an expert, you can open an account using a robo-advisor. Brokerage accounts often offer the least expensive and quickest ways to buy stocks. Meanwhile, advisor accounts require you to pay a certain amount of commission for the efforts of the one handling your account.
Learn the difference between investing in stocks and funds
The third step is for you to draw a clear line between funds and stocks investment. Here’s a breakdown of what makes these two different:
For one, mutual funds allow you to purchase small pieces of different stocks using only one transaction. This is a neat way to invest if you want to play it safe and minimize the risk of a loss. However, you shouldn’t expect any huge returns from this type of investment since you only have minimal shares. That doesn’t mean it is a bad investment since it can give you a diversified portfolio.
Meanwhile, stocks are where you buy stocks of a single company. You can even purchase multiple shares to create a bigger influence in the company as well as generate larger incomes from your share. Usually, in the United States, the amount of each share costs more than a few thousand dollars making it hard for investors to create a diverse portfolio.
This doesn’t mean that you cannot create a diversified portfolio in your stock investment. What this means is that you need a lot of money to back up your investments along with a significant amount of research to ensure that your investments won’t be a bust.
Set a budget for your stock exchange
A lot of investors often see their risk-taking attitude as a good thing when it comes to investments, but it is good to want to take the risks in exchange for the prospect of higher returns, it isn’t the only thing that matters. You need to be smart in your investment. Think about how much you are willing to invest. This amount should be something that won’t cripple you financially if lost.
Ask yourself the question ‘how much do I need to start investing in stocks?’ you can survey different companies and see how much their shares cost. Once you pick the right company for you, think about whether their shares are something that you can afford. Don’t just invest in the cheapest share if you think their business plans don’t align with what you have in mind or if you think they won’t be profitable.
Another question you might want to ask yourself is how much money should you invest in stocks? Investing large amounts is ideal to generate higher returns. However, with stocks nothing is sure. If you are still having second doubts about the profitability of a company, then you should invest minimal amounts. After all, you are only starting. Once you see it prospering, you can purchase more shares.
Focus on investing for the long-term
Stocks are a long time investment. It is only natural for you not to see any changes in your investment after a few months. It takes years for a company to be stable and that is also the same amount of time you need to wait to see a sense of stability in your stock shares. Do not withdraw your investment just because you can’t see it growing as fast as you would like.
It is always better for you to focus on long-term investments. Don’t think of stocks as something you can profit from as soon as you invested. It takes time and those who are calm enough to wait always get the sweetest fruits from their investment. Give your investment time to grow. In the meanwhile, you shouldn’t stop monitoring it to see whether there is a good opportunity for you to sell your shares.
Manage your stock portfolio
While checking obsessively on the fluctuations in the value of your shares won’t be good for you or your portfolio, it is still good for you to be aware of everything happening to your account. This is the perfect strategy to spot the best opportunities for your investment. Check the market value of your shares from time to time but learn when to time your trades to generate the most profit from your investment.
Another benefit of managing your portfolio all the time is that you can start moving your investments to ones that would benefit your needs. For example, if you are at your retirement age, you can move your stock investments to a safer and more consistent source of income like fixed-income investments.