How to invest in stocks for beginners:
Investing in stock is like learning a new recipe, the more you do it, the more adept you get at it. With that said, investing money in stocks can be tricky for someone who hasn’t had any prior experience in it. Before we can learn about investing money in stocks, it is important to understand what a stock is first. In layman’s terms, a stock is a representation of legal ownership of a business. Stocks are sometimes called equities, since they represent an ownership or equity in the company, or securities, since they represent a type of financial security as well.
How to invest in stocks:
Stock investing, once learnt can prove to be an incredibly effective tool in expanding your wealth. Here are a few ways to invest money in stocks as a beginner:
Identify your style of investment:
If you’re a do-it-yourself sort of person then you can register on a brokerage account and buy and sell stocks as per your personal research and instinct.
However, if some of the data seems mumbo-jumbo to you then you can take the help of robo-advisors online that will invest your money for you according to your goals, at very low maintenance costs of course.
Choose between stocks and stock mutual funds:
Stock investing is primarily of two types i.e equity mutual funds and individual stocks.
In mutual funds you purchase many units of stocks from several companies in a single transaction. This means that after investing you now own a piece of the company. It is possible to create a considerable portfolio after investing in several companies through stock mutual funds. This is also one of the safer ways to invest money in stocks, as the loss risk is quite low owing to the diversity of the portfolio.
- In individual stocks you can buy shares from a company you’re familiar with, like Apple or Microsoft based on your personal research. However, generating substantial income through this process is difficult, as it requires significant investment.
- If you want to slowly and steadily keep growing your portfolio then go for mutual funds, as the risk is comparatively low. But if you like throwing the Hail Mary once in a while, you can invest in individual stocks as well. If you lose you lose, but if you do get it right, it can make you a fortune.
Set a budget and open an account:
- The amount of money you need to invest depends on the price of the stock (it can be anywhere between a few bucks to six figures). Also you should allocate a large percentage of your investment towards stock mutual funds and lower percentages towards bonds, preferably less than 15%, since the probability of loss is high.
- When it comes to opening an account, an online brokerage is your best bet, since its both secure and flexible. A few factors should be taken into account before selection of the brokerage, like trading commissions, other costs, investor research and other tools provided by the brokerage. Once you find a brokerage that suits your requirements you’re good to go.