Here’s everything that you need to know about Investing in Stocks!
Investing in stocks can be a sure way of increasing your wealth exponentially when done right. With stocks, you don’t have to be an expert to start investing. Just look at the stock investor legend, Warren Buffet, he started purchasing stocks at the age of 11 – and now, he’s one of the richest persons alive. To get you started in stock investment, you only need a basic understanding of the market, how it behaves, and knowledge of how to trade stocks.
In this blog, we’ll be giving you the basics of stock investment. These are the fundamental things that you need to know before diving into the stock market. So, let’s get you started!
1. Identify your Goals
Before diving into the stock market, you need to define your goals first. Are you doing it to earn exponential gains in the long-run or are you planning to become an active trader? The reason is that these two kinds of investors differ in managing stocks. For instance, an active trader is one who continuously monitors the movement of the market and is proactive in buying and selling stocks while the one who plans on investing in the long-term is typical to invest one time and leaves it for long-term gains. An active trader will also require more in-depth knowledge about stock investment.
Knowing this at an early stage will give you a better understanding of what steps to take to grow your portfolio.
2. Choose your Investment Channel
In stock investment, you have three ways to start investing. This includes getting an online broker, making use of Robo-advisors, and investing through your employer. Each channel has a different premise for stock investors, which we’ll be discussing below:
The first way to enter the stock market is through online brokers. You can choose between having a full-time broker or a discount broker. With a full-time broker, you receive a full suite of financial advice and assistance about your stock investment options while with a discount broker, you get insightful tools and materials to help you in deciding which stocks to invest in, and you get the freedom to directly place your transactions. Typically, full-time brokers are focused on high-end clients with a massive stock portfolio, which they manage for their clients.
An easier way to get into the stock market is through Robo-advisors. Robo-advisor is an investment solution designed for low-cost investments. This kind of service does not require the investor to do the leg work of choosing individual investments. Instead, you can just provide them with your investment objectives and they will design you a portfolio that fits your targets.
Most of the popular brokerage firms offer this kind of service. So, if you prefer to become a passive investor and have someone make the investments on your behalf without paying for the pricey brokerage fees, then a Robo-advisor should be your best option. With Robo-advisor, you can just wait for your money to grow as time goes by, without doing the leg work.
Through Your Employer’s 401(k)
The easiest way to start investing is through your employer’s 401(k). This process is perfect for starters who prefer to be passive and would rather keep their investment with their employer. This is the most convenient option since you don’t need a third-party or a broker to manage your investments. With this option, your employer will just deduct a certain portion of your salary and just ride with your employer’s investment. Hence, you get to enjoy long-term gains without managing your portfolio yourself.
3. Choose the Stocks You Want to Buy
In choosing the right stocks, the best starting point is to check the stocks of the brands that you’re already familiar with as a consumer. This includes household brands like Google, Facebook, P&G, Pfizer, etc.
Understanding the market is important, but knowing the brand from a consumer side will also give you a better insight if the company has a better chance of growing or not. A company that’s doing good will most likely lure you in not only as a customer but also as an investor. As Warren Buffet once said, “Buy into a company because you want to own it, not because you want the stock to go up.”
Once you have a good list of the potential companies that you want to invest in, the next step is to do a background check. You can do this by checking the annual reports, these reports will give you an insight on how the company is actually performing and will give you a hint if the company is incurring losses or enjoying fruitful gains. Of course, you’d want to invest in a company that enjoys the latter.
Afterward, you combine these insights with the market trends, quarterly updates, and recent news to give you a holistic view is the company is feasible for long-term growth. Once you have all this information, your mind will surely be at ease in investing in a certain company.
Best Stocks to Invest In for Beginners
There are different kinds of stocks that you can invest in – some are riskier than others and will work only with experienced traders. Don’t worry, there are also those that are beginner-friendly, perfect for those who want to invest in stocks that are low-risk.
Dividend stocks are part of business earning or profits which are shared with stockholders. Businesses that offer dividend stocks are typically the well-established ones that boast years of consistent profitability.
Shares of Large Companies
For starters, big companies prove to be the safe choice since they come with less risk and are usually more stable than startup companies. Plus, these companies already have a steady stream of income so you won’t have to worry much about the stability of their operations and finances even in times of economic downturns.
Stocks of Profitable Companies
It’s highly recommended that beginners should only invest in low-risk companies. These are usually companies that are decades-old and have proven their profitability over the years. This will ensure that your investment will be safe since these companies have survived operations for a long time regardless of changes in the market.
ETFs or exchange-traded funds is a collection of securities that are attributed to indexes and are traded like stocks. ETFs normally fluctuate depending on the index it’s tied to. ETFs include various kinds of securities including stocks, commodities, and bonds. If you’re looking for bundle investments, then ETFs should be your top choice since it comes with combined securities paired with low expense ratios and fewer broker commissions – better than purchasing stocks individually.
The average return for ETFs is 7% per year, after inflation. The good news is that even though this rate varies every year, you can be sure to end up with high returns over time if you buy and hold your funds.
Best Companies to Invest in
By now, Amazon has already established itself around the world that I don’t even feel the need to explain why it’s a good choice to invest in Amazon stocks. In terms of revenue, Amazon also surpassed its revenue estimate of $4.5 billion with reported earnings of $7.22 billion for the last quarter of 2020 and $21.33 billion for the year, an 84.1% increase over 2019. Hence, if you invest in Amazon, you can be sure that your investment is protected since we’re not seeing any downturns in terms of Amazon’s revenue-generating potential in the near future.
IT is the most indestructible industry today. So, if you’re looking to diversify your assets in the IT industry, why not go for Microsoft, a timeless brand that’s still growing every day. Microsoft has been a household brand since the beginning of computers and is still a household choice to date. In the last quarter of 2020 alone, the company enjoyed a 50% revenue growth, which just proves to show that it’s a stable company, perfect for investors.
Aside from Microsoft, this tech giant is also a good choice in stock investments. Apple products are almost everywhere – with iPhone, air pods, MacBook, and iPads continuously dominating the gadgets scene, you can be certain that Apple is a good investment choice. You just need to be prepared for the price point.
Procter & Gamble
If you’re looking for a manufacturing company to invest in, then P&G should be at the top of your list. While this company is not the sexiest one to invest in, it offers you great security and protection being a consumer-staple company. Meaning, since it offers evergreen products, its revenue is not governed by external factors like seasonal changes. In fact, even the pandemic did not affect the dividends of P&G as it was able to maintain its dividends. Furthermore, due to the nature of its products, people will always buy it regardless of how the economy is performing.
4. Prepare Your Financials
The common notion in stocks is that you need to have a lot of money. However, that’s not entirely true. Today, there are tools that allow you to invest with no minimum requirement, so capitalizing on that, any amount that can buy a single stock can be enough. However, we don’t recommend that if you want substantial earnings.
Basically, the perfect way to look at it is to scale your investment with the pricing of your preferred stocks. If you prefer to buy mutual funds, then you might need to prepare a bigger sum than when you choose to invest in individual stocks. If you’re eyeing to invest in a huge company with a high stock price, don’t worry, there are some brokers that allow investors to purchase a fractional share. For instance, your budget is only $100 and you want to buy a stock of Facebook which costs $269 per share as of writing, your $100 will still be accepted to purchase a fractional share.
A conservative investment for starters would be anything at least $100 – this amount should be a great starting point if you prefer to start slow and grow your portfolio as you go on. This is also recommended if you’re after a low-risk investment since you don’t want to put in everything in the beginning when you’re still unfamiliar with the market behavior.
5. Diversify and Reduce Risks
In stock investment, the best way to reduce risks is to diversify your portfolio. Like in every investment, putting all your eggs in one basket can make or break you. If you’re a risk-taker and have nothing much to lose, then that’s fine but if you’re a beginner and would prefer to have a low-risk investment, then diversifying your portfolio will give you better chances of enjoying bigger gains.
It’s also important to note that the stock market is inevitably erratic. Hence, there is no reason to fret in each market movement every day. If you’re a long-term investor, then it’s enough to check your portfolio once in a while and not every minute of every day. Just let it still and wait for it to gain value. Besides, if you invest in a company that has a solid foundation like Google or Facebook, there should be no reason to worry about it.
6. Sell Your Stocks
Once you’ve successfully expanded your portfolio, you need to understand how you can easily sell stocks. The majority of investors buy when the stock market is rising and sell when it’s dropping. However, there’s more to it than just that, a knowledgeable investor adapts a strategy that’s designed to get maximum returns. My advice is to monitor the market’s major indices like the Dow Jones Industrial Average, S&P 500, and the Nasdaq.
In times of market crashes, there’s no need for you to panic since these are inevitable. The good news is that these crashes typically don’t last very long and it has been proven historically that the market will eventually climb back up. Besides, losing your money unexpectedly may be a bad thing but when you just hold on to them, they can provide you with an even bigger return.
Investing in stocks is great for beginners who would like to expand their wealth portfolio. However, in the beginning, regular trading might not be the best choice for you since this requires a great amount of training.
While stock investment proves to be one of the best forms of investment, it’s not entirely simple since it takes time and a lot of effort if you want to grow your wealth exponentially. The good news is that there are simple tools that you can use to make your life easier. Plus, there are rules that you need to follow all the time like diversifying your portfolio and knowing the perfect timing on when to sell and buy stocks.
What do you think of this article? Are you ready to start growing your stock portfolio?