How to Start Investing in Stocks: A Beginner's Guide (How to Invest in Stocks for Beginners)
Investing in stocks has been proven time and time again as among the most reliable income generators in the long run. However, for beginners, the mere thought of investing in stocks can seem daunting and even scary at first. To help ease your mind and wash away your worries, this short guide will introduce you to the world of stock investing so you can proceed with your journey with lesser burden on your shoulders.
What are Stocks, Anyway?
A stock is a part-ownership of a business. A business is like a pizza. When you divide it into slices, every pizza slice represents a share of the business. The main objective here is to create a portfolio of growing and strong companies for you to take advantage of their growth and success. A company that does well will earn more money that will let them pay higher dividends to its stakeholders. Companies with growing dividends and show quality growth also benefit from higher share prices in the long run. However, it is worthy to note that while stock market returns are often positive in long-term, they have the tendency to be volatile in short-term.
To get started with stock investing, here are some steps you can follow:
Identify What Type of Investor You Are
There are primarily two ways to invest in stocks. You can be a DIY investor or you can outsource the job to professionals. Going DIY is better if you want to be more hands-on in choosing equity funds and stocks. Meanwhile, you can let the professionals handle everything on your behalf if you consider stocks as good investments in the long run but you want someone else to oversee the process.
Determine the Allocation for Stocks in Your Investment Portfolio
The general rule of thumb is to avoid investing money you will need in the next 12 months or 1 year. While investing in stocks has overwhelmingly positive long term returns, the short term ones tend to be very volatile. Before investing in stocks, you have to ensure that you already have an emergency fund in place as well as enough money for paying off all your borrowings such as mortgages and credit card bills.
How much you allocate for your stock investment is totally dependent on whether you can tolerate volatility or not. Don’t forget that stock prices can fluctuate in a span of 12 months. For some, this is comfortable but others don’t find it so.
What is important here is that you know your own comfort level when you decide on the allocation you want for your stock investment.
Open a Brokerage Account
A brokerage account is necessary when investing in stocks. There are numerous companies where you can open one. One of the biggest benefits for modern investors is how much the costs of trading have gone down for the past few years.
There are even online stockbrokers that have completely removed trading commissions. The key differentiators among brokers are their trading platforms, research platforms and educational tools.
Every platform has its weakness and strength so make sure you conduct a research first to determine the broker that best suits your needs.
Investing in stocks shouldn’t be a daunting prospect. As long as you know what to do, you can be well on your way to having a positive investing experience!
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