Investing in stock can be a great source of passive income. Learning, how to invest in stocks takes time and has risks. Your profit will depend on the company’s performance where you bought shares from. If the company is making a profit you will be making a profit as well. Identifying the future of a company is tricky and requires years of experience. If you invest money wisely, you can get high returns within a short period. But you should have investment goals and should be able to handle risks.
Understanding how the stock market works is necessary for beginners. Investing without understanding the fundamentals would be putting your money at risk.
What are stocks?
Stocks are equal to equity investments that speak for legal ownership of a company. When you buy stocks from a company, you become a shareholder or part-owner of that company. You become an owner of a small percentage. When you buy stocks from a company, you put your money into the improvement of the production of that company. So, as a shareholder, you will be making a profit or loss depending on your investment, demand for the product, and the performance of that company.
Why do stock prices fluctuate?
Stock prices always fluctuate frequently. There are quite a few reasons behind it. It mostly depends on the demand and supply. When the supply is low and demand is high, investors are most likely to invest. So it makes the stock prices go high. Accordingly, when investors sell their stocks more than buying, it automatically lowers the price. Basically, the company’s performance doesn’t affect stock prices directly, investors’ reactions to the supply and demand make stock prices fluctuate.
How to invest in stocks?
Investing in stocks can be beneficial in the long term. If you invest money wisely, you can have a good source of passive income. If you are an absolute beginner, you should consider yourself taking some time to understand how the stock market works. People become millionaires or bankrupts overnight. Here are few steps you can follow:
1. Decide how you want to invest in stocks:
Deciding how you want to invest in stocks would be the first step to follow as a beginner. You can invest on your own, you can hire professionals to guide you or you can invest through your employer’s 401(k).
Investing by yourself
If you are confident enough in your research and investment plans, you can invest all by yourself. You can save money by not hiring experts or brokers. But it is too risky to do as a beginner. You can easily make mistakes and lose a lot of money. So, it will be better if you perform proper research and invest in shares wisely.
Investing with experts
There are thousands of brokerage firms and Robo-advisors available in the market. They offer investment management at a low cost. They will help you to invest in stocks according to your investment goals and budget.
Invest through your employer’s 401(k)
It allows you to invest from your paychecks before the taxes are calculated. You can invest a percentage from your paychecks with your employer’s 401(k). Usually, investors invest 1% of their paychecks regularly. Later, when you start making a profit, you can invest with a higher percentage.
2. Create an investment account:
To invest in stocks and shares you will need a brokerage account. You can open an investment account with brokers or Robo-advisors. They both create opportunities depending on the individual.
Standard Brokerage Account
It allows you to create an investment account less expensively and most quickly. You will be able to create an IRA (Individual Retirement Account) account or a taxable brokerage account as well. It also allows you to invest in stocks, mutual funds, bonds, etc. You will be able to use your funds anywhere and anytime you want.
Robo-advisor Account
It offers automated investment management facilities to account holders. Your account will be managed by a computerized process. You can choose your investment budget and set your goals and it will manage your investment portfolio. You can create an IRA account as well.
3. Set your Investment goals:
Setting up your investment goals as a beginner is very important. You don’t want to invest without knowing the outcome. Make sure that your expenses and savings are allowing you to invest. You should save some money before investing. You should set your goals according to your age as well. 30 years old investor will have a lot of time to invest before retirement than an older person.
As a young investor, you will have a lot to achieve which requires extra savings. On the other hand, as an older investor, you will have more money to invest in stocks because you won’t be having too many responsibilities.
4. Diversify your stocks and reduce Risks:
Diversifying your stock investment will reduce the chances of losing money. If you invest a lot of money into a single company and the company doesn’t perform well, you will be facing a huge amount of loss. You won’t be able to recover from the loss very soon. However, if you invest in multiple companies, it will be less risky because you are diversifying your investment into multiple companies. So, if one of the companies running in loss, other companies will be able to recover your loss and give you profits as well.
5. Keep Investing:
In order to make a good amount of profit, you have to invest a lot. But don’t invest a lot of money in just one company or business, try to invest a small amount of money into multiple companies. It will help you to understand stock price fluctuations and the potential of a company. You will be able to understand when to hold or sell the shares. Moreover, you will be gaining a lot of experience which is the main secret of investing in stocks and shares.
As an investor, your main goal is to buy stocks at a low price and sell it at a much higher price. Investing in stocks can provide you high returns in a short period. It may sound very simple though every investor faces losses on regular basis. As a beginner investor, you should follow other experienced investors and keep an eye on the stock market. Don’t hesitate to hire a broker or use Robo-advisors. Investing in stock will be profitable in a long term.
