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If you had asked me about stock investing a few years back, I’d be like, “don’t do it. This world is only for the rich and people with good numbers.” But today, I have a different opinion. I would highly suggest stock investing when you have something to invest in.
Stock investing is not just a good way of getting profits in the longer run, but it’s now very easy to invest (even trade). And thanks to technology that has made stock investing quite easy and fun these days. It isn’t just a game where you have to walk into a broker’s office to invest or trade. You can simply sign up using top-notch broker apps and do everything yourself or hire an advisor.
In this post, I’m not going to talk about top online stock brokers, but some basic steps to stock investing. These steps will help you build a solid strategy for entering the stock investing domain and are primarily for beginners. So, without further ado, let’s get started.
Things You’ll Learn Here
Stocks (aka shares) represent ownership in a company. So when you buy stocks in a company, you become a shareholder (aka stockholder or partner) in that company. You have the right to vote at general company meetings and can get annual dividends.
Moreover, you may buy a single stock or as many as you like. The higher the stocks you buy, the higher the return you may expect.
Now to the basic steps of investing in stocks for beginners.
Basic Steps to Stock Investment
Generally speaking, there are five steps to investing in stocks for every beginner stock investor. I have covered all of them here.
1. Choose Stock Investment Approach
There are several approaches to investing in stocks, suitable for rookies to experts:
- If you’re just starting up, you might want to work with an advisor. An advisor is a broker representative you signed up with. There could be a robo-advisor (a real person behind the scene) or a real person directly in contact with you. He/she will keep you updated and will help you buy, sell, or invest in stocks to give you the best earning opportunities.*
It’s the most common way of investing in stocks and gives you the best option to earn extra while doing nothing (not literally, you have to stay in touch with your advisor). Of course, this method has a cost attached to it, which will vary from broker to broker.
- If you know how to play in the stock investment field, you don’t have to hire a professional, you can do it yourself. This approach doesn’t involve a professional fee, though it does require your attention. This investing approach may become stressful if you are speculating instead of investing. However, there are more benefits than drawbacks, such as you’ll improve analytical skills, will trade without discussing anything with a professional advisor, knows the stock market from inside, out, etc.
Some brokers don’t offer both options. Exness is one such broker. On the other hand, if you need a broker offering both options, you can open an account with Fidelity.
*Not every broker works in your best interests. My sister just lost a big investment by relying on some unknown brokers.
2. Open an Investment Account
Based on your investment approach, you now have to open an account with a suitable broker. As there are plenty of brokers out there, it would be a challenge to mention them all. I’ll be writing about the top brokers in other posts. You may want to know those options to have the best stock investment journey.
Generally speaking, we’ve two types of investment accounts:
- A brokerage account: This account type is the one where you’ll be doing everything on your own. It’s the least expensive way, but certainly requires a good knowledge of the stock market and how to stock trade. Most brokers usually have this type of account for users. It offers some free tools to analyze and do everything. Furthermore, you can also decide if you want to invest actively or passively. Passive investment is similar to stock investment, while the other is more like speculation.
- An advisor account: As the name sounds, this type of account is for those looking for professional advice when investing. Of course, there’s a cost to such an account, but it saves you time and effort. It usually starts with answering questions about your risk tolerance and other things. Once you’ve completed the process, an advisor account will be set up for you where the robo-advisor will do the job for you. While you don’t have to worry about an advisor account with renowned brokers, there are a few bad brokers who’ll cheat you and give you nothing but losses. Beware of such culprits.
3. Choose Your Investment Type
Don’t be overwhelmed by similar terms. By choosing the investment type, I mean if you prefer buying individual stocks or mutual funds. I’ll not go into details of each investment type, but will only give you their basic understanding:
- Mutual Funds: Mutual funds are a bucket full of different stocks. When you invest in a mutual fund, you acquire a limited share of a lot of stocks. With such a diversified portfolio, the risk of losing your investment is minimal. There could be some stocks going down, while some would be going up, safeguarding your investment.
- Individual Stocks: It’s opposite to mutual funds and has the same meaning as it sounds; buying an individual company’s share. Investing in individual stocks could be risky, but if you’re lucky, you may make more than those investing in mutual funds.
4. Determine How Much to Invest
Now that you’ve selected an investment approach, opened an account, and decided on the type of stock investment, you now need to set your budget for investing.
Since we’re primarily talking about investment and not speculation, I’d suggest a continuous flow of investment to make more profits in the future. The investment doesn’t have to be in the thousands, hundreds, or even low would do the job if you invested wisely.
Some brokers may allow an investment of as low as $10, while others allow an investment of a minimum of $2,000. Usually, some top brokers go with the highest bracket, while the new ones go for the least. Wherever you plan to invest, just make sure the broker is registered and isn’t going to deceive you.
Once you’ve deposited your first investment, I would suggest pooling more and more from time to time so you get the most out of your stock investment at the end.
5. Track Your Portfolio
Be it a self-managed (aka brokerage account) or an advisor account, always keep track of your portfolio. With reputed brokers, you may stay away from your accounts without much pressure. But with a brokerage account, you’ve got to stay vigilant. That said, it doesn’t mean a slight dip in share prices would mean selling the shares immediately. Share prices go up and down in nanoseconds. And when you’re investing, you must keep the shares for at least three years. That’s the time when you get the best out of your investment.
Of course, I don’t mean that you should keep a continually dropping share in your portfolio. If you see bad signs, sell the shares immediately and buy new ones.
Stock investing isn’t as easy as it may sound, nor is it too complicated. The best tip I can give to beginner stock investors is to play small and keep a close eye on your portfolio. Also, learn more and more when you go for an advisor account. You can’t and shouldn’t only rely on bots or advisors.