Investing in stocks is an excellent way to get your money to work for you. Investing has made many entrepreneurs into wealthy men with multiple income streams. So if you are considering going into a stock investment, you have made the right decision, and a few years from now, you will be glad you did.
One of the best ways for newbies to start investing in stock is to create an online investment account where you can keep your money and use it to invest in shares of stock. So if you are wondering where and how to start, this guide will show you everything you need to know in a few actionable steps.
Determine Your Investing Style
When investing in stock, the first thing to do is choose your investing style; you can decide to buy individual stock or choose a less active approach. Here are the various ways to invest in stock.
Do you have enough time and willingness to regularly research and evaluate the stock market? Your answer will determine if this is the right type of investment for you. Investing in individual stock will require you to do everything yourself, from the mathematical calculations to the earning reports. Therefore, you will have to be very smart and patient with the market. However, consider a passive approach if you feel you can’t handle this.
Index funds have become popular in recent years due to their simplicity and low cost; they are passively managed, requiring less research and trading by fund managers. Index funds are a type of exchange-traded fund that keeps track of the performance of a specific stock index. The index funds hold the same stock value as the stock being tracked, and as the latter grows, the index funds also appreciate.
This is also another passive investment option that has become very popular in recent years. A robo-advisor is a brokerage company that invests your money on your behalf. So you don’t have to do anything, relax and watch your money yield good profits.
They can invest in different index funds, and the investment will appreciate over time. A robo-advisor has many benefits, like proper research to select the best investment, optimising tax efficiency and automatic changes that suit various market trends.
Choose an Investing Account
If you have decided on the type of stock investment you want, the next step is to find an investing account because this is where your investment will start. So you will need a specialised brokerage account offered by different companies online.
Opening a brokerage account is just as simple as opening an account on a site; all you need is some personal information; after that, you will need to fund the account by any method available, and you are all set.
Decide on Your Budget for the Investment
While you are excited about investing in stock as a beginner, jumping on it without a preset budget is not advisable. So you must know that the money you invest in stock might not come back to you even in the next 3 to 5 years; that is why you must make proper investment plans.
Think about how much you are willing to invest that you wouldn’t need anytime soon, do not invest your rent, tuition fee, emergency fund and the likes. Also, keep in mind that investment has risks, so you will either make profits or losses.
Choose Which Stock you Want to Buy
If you choose to buy stocks individually, you should pay attention to every detail in this guide. This is where you have to research and look for stocks; since several companies offer stocks, choosing which one to buy will be more challenging. So first, the types of stock you can buy are value stocks, growth stocks and dividend stocks.
Choosing one from these three may not be enough to come to a good decision, so it is advisable to use a stock screener to narrow down your list. Stock screeners have a versatile range of filters and tools that can help you screen out companies that are not suitable for investing in stock. You can access these stock screeners in your brokerage account or search for one online.
Execute Trades in Your Account
Now that you have a brokerage account and have chosen the stock you want to buy, there are some things you should know about ordering stocks. First, you will have to select an order type, and the two most common order types are the limit order and the market order.
With the limit order, you will name your price and wait for the stock price to fall to your price within a set time; if it doesn’t, your order will be cancelled. However, with the market order you will instruct the broker to buy stock as soon as the lowest price is available.
If you have chosen your order and successfully purchased your stock, you have to manage your portfolio, check in at intervals to ensure everything is still in line, and you can even buy more stocks when you have the funds.
Decide When to Sell Your Stock
Selling your stock is a decision that has to involve an investment plan. For example, do you want to sell your stock when retiring or whenever you need money? So it would help if you had a plan for when you would like to sell your stock.
In addition, if you decide to order your broker to sell your stock, you must understand capital gain taxes, which you must pay if your stock has gone up in price since the time of your investment.
If your shares are less than a year old, you will need to pay ordinary income tax, which is about 37%, but if your stocks are more than a year old, you will pay taxes with the lower long-term capital gains rate, which is 0% – 20%.
As a beginner, investing in stock might seem like a high-risk decision and can be daunting, but knowing the right stock to invest in and starting small to mitigate risk are the most important things in stock investments. The investment approach you use is also a vital consideration, so ensure you choose an approach well-suited to your level of expertise.