You have been working for money and have finally taken a bold step and decided to let your money work for you. The best way to get your money to work for you is by investing it. But then you have to be careful when deciding how you want to go about your investment. Just as investment has its good sides, it can be ugly sometimes.
You may have considered many investment options and decided to invest in stocks since it is a popular form of investment. But you do not know much about stocks and wish to learn about them and how to get started. This article will take you through the basics of investing in stocks, giving you all you need to know as a beginner to get started.
How to start investing in stocks
You’ve seen it in Hollywood movies; you keep hearing it in the news; the impression that everyone understands how the stock market works grows without control. But in the real sense, quite many people lack the basic knowledge of how stocks work and how to invest in them.
Investing in the stock market can be tricky, especially for beginners. However, the digital world has helped make investing in stocks easy. We now have various platforms where people can easily buy shares in different top companies from the comfort of their homes. Before highlighting some essential tips you need to know before investing in stocks, we need to understand the meaning of stocks and the stock market.
Understanding stocks and the stock market
Stocks are securities that give a shareholder an ownership interest in a public company. They are usually made available to investors by public companies looking for ways to fund their businesses. Investors who see the prospects of the business becoming a success in the future will buy the stock offered by the company.
However, the stock market is a collection of stocks that can be bought and sold by the general public on various exchanges. In the stock market, people can buy stocks in a company, making them a shareholder. They get dividends on their shares plus any appreciation in the price of the shares. They can also watch their funds dip or disappear when the company goes bankrupt.
Tips on investing in stocks for beginners
1. Define your investment goals
The first thing to do before investing in the stock market is to ask yourself why you are investing. Are you investing long-term for your retirement? Do you just want to keep your money there in expectance of rainy days? You need to determine and define the purpose of your investment.
Investing in stocks with money you won’t need in the next three to five years is generally advisable. Through these periods, there will be ups and downs. So, since you have defined your goal, you must prepare yourself mentally to see your investment through.
2. Choose an online stock broker
The easiest way to buy stocks is through an online broker. Online brokers make it easy for you to buy and sell investment vehicles like stocks and bonds. All you have to do is create an account on the broker’s website, similar to opening an account with a bank. After completing the account application process, you can fund your account by bank transfer or debit card.
3. Research the stocks you’d like to purchase
Once you have created and funded your account, the next thing is for you to research which stocks you want to buy. You can decide which company you want to buy stocks from by clarifying your goals and checking for companies with good prospects that will make it easy for you to reach your goals.
Once you have identified the company you want to buy stocks from, the next thing to do is conduct an investigation. Brokers provide the tools and information you need to run your research, such as transcripts of SEC filings of quarterly earnings reports from conference calls, and the latest news updates about the company.
4. Calculate how much you want to invest
After you have identified the stocks you want to buy, the next thing to do is calculate the amount you want to invest in them. Your investment goal and the timeframe of your investment period (known as the time horizon) will determine how much you are to invest. For instance, for a person who is investing ahead of their retirement, it is always advisable to invest up to 15% of their annual earnings. The person can, however, decide to invest more than 15% depending on how close the retirement is.
5. Learn to diversify to reduce risk
Another thing you need to know as a beginner in investing in stocks is to learn to diversify your portfolio to reduce risk. Diversifying your portfolio can be described as not putting all your eggs in a basket. Investing in different stocks from different companies is always advisable rather than investing all your funds in a stock from just one company.
By diversifying your portfolio, you can reduce the effect of one bad performance from a company on your investment portfolio.
Investing in stocks can be tricky, especially for beginners. However, when fortified with the right knowledge and resources, you can make good returns from your investment. To prevent bad investments, it is crucial to thoroughly research the companies you are willing to buy stocks from.
At Earnipay, we have prioritized ensuring our customers have a better financial life, which is why we have all the financial resources you need to grow financially. You can download the Earnipay app today and locate Learn, our financial education product, to improve your financial literacy.