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If you are searching out investment options, one of the ways that you can invest your money is in stocks.
When you invest in stocks, you are essentially buying shares of a company. In other words, you are buying ownership of the company through its shares, also called the stock.
Investors hope that the company they are buying stocks from will eventually grow. This will cause the value of the shares to rise and thus, there will be a return on the investment.
What this means is that when the investor decides to sell the shares, they can do so at a higher price than they bought them at.
The easiest way for stock investors to get started is to open a brokerage account and fund the account. They can then buy shares by investing as little as the value of one single share.
Needless to say, there are one too many things to consider before you put your money towards a company.
Now let’s have a look at the 6 most important steps to investing in stocks, shall we?
There are several ways by which you can invest in stocks. These are:
· Choosing funds and stocks on your own
· Get an expert to purchase stocks for you and manage your investment
· Invest in stocks via your employer’s 401k account
To invest in stocks you will need to open a brokerage account. This, however, is for the investor who prefers to choose funds and stocks on their own. I.e. they are more hands-on.
You can also invest in stocks with the help of an advisor. For this, you will need a Robo-advisor. The benefit of these two options is that you don’t need a huge amount of money to get started.
If you intend to go the do-it-yourself route, then opening an account with a broker is the quickest way to get started investing in stocks.
You have two options here:
· Open an individual retirement account IRA
· Open a brokerage account ( ideal when saving for retirement using an employer 401k plan)
If you need expert advice, opening a robo-advisor account is the way to go. These services and companies will ask you to describe your needs and investment goals.
They will then use this information to create your portfolio. The great thing about this option is that you don’t have to do any groundwork and research.
Granted you will need to pay management fees. This however is only about 0.25% of your investment.
When investing in stocks, you will also need to choose between the two main options. These are:
· Investing in stocks
· Investing in exchange-traded funds or stock mutual funds
Investing in stocks of an individual company can be a great way to get started in your investment journey.
You can buy anything from a single share to as much as your investment can allow.
One of the major benefits of investing in the stocks of a single company is that a rise in the value of shares can result in great rewards. However, the risks are significantly higher compared to the second type of investment we mentioned.
ETFs or stock mutual funds allow you to purchase different shares of different companies all in a single transaction. The main benefit of this is that you can even out the risks compared to buying stocks from an individual company.
This creates a more diversified investment. While the risks are minimized, it is also unlikely that the prices will rise exponentially as sometimes can be seen with individual stocks.
Stock mutual funds are also referred to as equity mutual funds.
As a beginner stocks investor, you may wonder how much you can invest in stocks. This depends on the value of the shares that you want to invest in.
You can invest in as little as one share. The prices will vary from company to company. They can be anywhere from a few dollars to a couple of thousand dollars per share.
If you are concerned about not having a lot of money yet you still want to invest in stocks, an ETF is your best bet. That said mutual funds can start from $1000 upwards.
Any clever investor knows to diversify their portfolio to control risk. So what percentage of your investment should go to stocks?
If you plan on long-term investment such as a 30-year retirement plan, you could have up to 80% of your investment in stocks and 30 percent in bonds.
One of the areas where investing in stocks truly shines is when you invest for the long haul. This means holding stocks for decades if possible.
The average return on the long-term stock investment is 10% per year. It is important to point out that there will be some years where this will go up and some other years where it will go down.
While it is tempting to try day trading with investing in stocks, often the most successful traders will advise sticking to the basics and just investing in funds.
Once you invest in funds, try and avoid compulsive checking as this can cause anxiety when you notice the price of the stock is going against you.
Granted it is not advisable to always check your portfolio daily. However, you will need to do so a few times each year to be able to manage it.
This lets you first and foremost see if your investment is still in line with your goals. For instance, you may have a portfolio that is weighted on one type of industry.
In this case, it would be a good idea to purchase stocks in other industries as well.
This can help cushion you on any economic shocks to an industry.
Investing in stocks is not an easy game, though companies like E-Toro may make it seem as simple as “copying the strategy of a good investor”.
When investing in stocks, think in terms of “Which company is most likely to make the future of humanity better?”.
Always do your research and invest in things that truly matter!
