A Beginners Guide To Investing In Stocks
Investing in stocks is a great way to help your money grow in value as it sits there doing nothing.
The earlier you start investing, the more money you’ll have at the end of the process. You can invest with as little as $25 a month or put aside $1,000 in one go.
Before you get started, there are a couple of things you need to wrap your head around first. We have broken down the basics of investing to help you on your way.
Recognize That There Are Risks
Investing isn’t a sure thing, and there is a risk that you will lose your money. Some investments are riskier than others. New businesses, foreign markets, real estate, and currency trading are all considered high-risk investments. However, with high risk comes high reward.
You might end up losing that $2,000 investment, or in 2 years it could have tripled.
Low-risk investments are normally businesses that have been around for a long time, such as Google. Government bonds are also considered low risk because the government can offer you security.
As you might expect with a low-risk investment, the returns will be low too. This means you are unlikely to lose your money, however, it will take a while to grow to a generous amount.
Only you can decide if you’re happy with a high-risk investment or would rather pick something more stable. However, we would recommend starting with a low-risk investment until you understand more about investing in general.
Once you feel more comfortable you may want to increase your investment risk, but remember that doing so could mean losing your capital in the process.
One way to reduce the risk of your investments is to diversify your investment options. If one of your investments fails, the other investments in your portfolio will help your finances stay positive. Ideally, your investments should be in multiple different areas this way if one whole sector flops, it doesn’t affect your finances too dramatically.
For example, when a country goes to war, many investors pull out of their financial obligations to that country. This makes their stocks and value drop. If all of your investments were in that country (regardless of the different sectors), then all of your investments will be lost.
Diversification at every stage can help you avoid mass losses.
Figure Out Your Goals
To help you make this choice, you will need to consider your overall goals.
If your investment choices are designed to help build up a small pot of wealth, then you should consider a stock option that doesn’t risk your savings and slowly grows year on year.
If you instead hope to boost your savings in preparation for a large purchase such as a house or a vacation, you should consider investing in a high-risk investment for a short period of time. This will give you the biggest boost while allowing you to back out of the investment to use your funds as desired.
If you’re hoping to widen your financial portfolio, then consider investing in different types of stocks. For example, put a small investment into government bonds, software companies, small businesses, and real estate. This wide variety will instantly make your portfolio look more diverse, despite each investment type being stocks.
Having a goal can keep you motivated, and motivation is key to ensuring you focus on your growth.
To create your goal, focus on the SMART method – specific, measurable, achievable, relevant, and time-bound.
This will help you stay focused on your goals, make them achievable instead of wishful thinking, and allow yourself to see an end date to get the goal completed.
Decide If You Want To Manage Your Stocks Yourself
A lot of people won’t get into stock investing because they simply don’t know how. As a beginner, we recommend using an online broker. There are normally three types of online brokers; expert advice, solo management, and auto-brokers. To learn how to choose the right online broker, you first need to understand the points mentioned above.
Know how much risk you’re willing to make, your goals, and how to manage your motivation.
Many people can only stay motivated if they manage their interests themself. If that sounds like you, then search for an online broker that can help you open an investing account and walk you through the investing process. You can then spend time searching through stock information and forecasting data to find the perfect match.
If you want to get the best deals that match your goals, you may want to speak to an expert. There are multiple investing accounts that offer in-person and specific expert advice alongside the accounts. These professionals will tailor your investments based on your requests and keep you informed about how they are growing.
Lastly, if you like the idea of investing but don’t want to be too hands-on, then we suggest using an auto-broker account. With these accounts, you can tell the automated system how risky you want your investments to be and how much you want to invest. It will then automatically find stocks that match this description and place your investment as desired.
Once the investment becomes too risky or loses value, the automated system removes your investment and places it elsewhere. You don’t need to do anything with these investments as the bot does everything for you.
The downside to this method is you will not have complete control over which company the computer invests in. This means if you don’t agree with the company’s values, you may end up supporting a business that goes against your morals.
The Fees Involved
There are three types of fees you can expect in your investment process. The first is a flat monthly rate, the second is a commission, and the third is called a Management Expense Ratio.
On a flat monthly rate, your investment account may charge you the same figure every month. To make sure your investment charges don’t cost you too much, you need to ensure that your income from the investment either matches or is greater than this charge.
A commission-based fee is the most popular. They will charge you a percentage of the returns. To find the best value, you need to look for the lowest percentage in commission charges.
The MER is a fee that has to be paid by the shareholders of a mutual fund. These are investments that are managed by multiple people rather than one singular investor. The money goes towards running the fund for the large group.
A Management Expense Ratio also works on a percentage and can range from 0.05% to 2% on their annual charges. The fee is based on the overall earnings rather than an individual return, so keep that in mind when the bill comes.
Summary
To invest in stocks you need to talk to a broker to help you manage your investment portfolio, however depending on how involved you want to be with the process, and how much you want to risk, you can invest in almost any stocks you desire.
We suggest starting this process with an auto-broker account that invests in low-risk stock. This will allow you to increase your financial value while you learn about stocks in general.
Remember that each accounting type will have a fee, so weigh up how much you expect to get in returns and how much this may cost you in the long run.
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