Beginner’s Guide on How to Invest in Stocks

Beginner's Guide on How to Invest in Stocks

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Last Updated on September 11, 2017 by Work In My Pajamas

Beginner's Guide on How to Invest in Stocks

Stock is a unit of ownership in a company. Each company is divided into a number of shares and the owner of a share owns a small percentage of the company.

To put it simple, when you buy a stock, you’re buying a piece of the company. And this is done through an initial public offering (IPO), in which the price of stocks is set based on how much the company is estimated to be worth, and how many shares are being issued.

While it’s certainly possible or even easy to make money from investing in the stock market, it’s also possible to lose really quickly if you don’t know what you’re doing. According to the American business magnate, investing is a no-called-strike game. That’s why before you take any action in this field of business endeavor, do your research well, you can even enroll in financial courses, and wait until you’re ready to dive in. And here’s a very comprehensive list of things to mind to guide you.

Understand your options

So you’ve decided to invest in the stock market. But which one? There are so many ways to invest in stocks. How can you decide what is right for you? Below are types of stock business-minded people commonly opt to choose:

  • Equity index funds or exchange-traded funds

This type allows you to invest in a variety of asset classes, like stocks, bonds, and commodities with an added advantage of flexibility. Equity index funds typically have higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.

  • Individual stocks

If you are naturally not someone who takes risks, and feel uncomfortable doing so but still want to invest in stocks, this would not be the best bet for you. Individual stock provides both the hope of great returns as well as the potential for disastrous results.

Determine your budget

Determining your budget for investing on stock market depends on various factors. This step is very crucial and important. For whatever factor you may have, the first thing to consider is to know your entire net worth. New investors often ask the following questions before they dive in.

  1. How much money do I need to get started?

You don’t have to be rich to play the stock market. It’s possible to start out with a very small stake, and build it over time giving you far greater rewards than you would realize from simply putting that same amount of money in the bank. The money they need in order to invest in stocks actually depends on how much the shares are.

  1. How much money should I invest?

The amount you need to invest depends first on the broker you use. Some brokers require you to put $5,000, $10,000 or more into an account to start. Full-service brokers typically require a larger initial account, but there are some online brokers that will let you start an account with as little as $500.

Get the best broker depending on your preference

Choosing a broker isn’t all that different from choosing a stock. It requires a lot of careful contemplation. And it’s absolutely necessary to balance your needs as an investor and as a client. While your first broker won’t necessarily be your broker for life, you have a much better chance of making money as a new investor if you put the right amount of time, effort and research into choosing the best broker for your preference.

Do your research

Investing in the stock market may look simple, but it’s not. That’s why doing your research is important because taking the time to look over the financial history of the companies that one is thinking of investing in, will give the prospective buyer a better sense of the future. Don’t just rely on stock tips and other unreliable sources. If you have the time, spend it by enrolling on online financial courses to help in theoretically assessing the best route to take in investing.

Gather your courage

One of the factors that successful stock market investors tend to possess is courage. Stick to the plan. As always, the first part is the hardest. It is an emotional process. It’s all too laidback to dread and pull out at the wrong time or get flounced up in a rally and invest more than you can afford in what feels like a winner. But it’s important to stay the course, as long as you have a long-term plan.

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