Investing In Stocks

how to start investing

Investing in stocks is probably the first suggestion you might hear from your financial advisor. Stocks are one of the best ways to invest when working with the long term in mind. It is even harder when investing for beginners as you have no experience of how stocks work. This article talks about how to start investing, the best way to invest and also investing for dummies (newbies).

What Is Your Risk Appetite?

This cannot be overemphasized enough as most investors invest and attach emotions to it, This is important when trading stocks so that you know how much you can afford to lose or gain. Books and guides on investing for dummies will always point this out immediately.

How Long Do You Want To Hold The Stocks?

It is advisable to trade stocks for the long term as crashes occur occasionally such as the financial crisis of 2008. However, most fund managers will always advise for the long term as it’s best not to judge based on short-term profits.

The younger you are, the better it is. An investor in his 20’s planning for retirement should have a portfolio consisting of over 70 percent in stock funds. It is recommended to keep individual stocks to a minimum of 15 percent due to volatility.

Getting Started: Online Brokers Vs Robo-Advisors

Now, this is where things start getting serious. If you’re the type who likes to get things done yourself, an online broker seems like a better option. On the other hand, a robo-advisor makes decisions for you based on preferences from which it suggests a stock portfolio. In the UK, robo-advisors are becoming popular as their usage will rise as high as 57% by 2025.

Online brokers will offer advice on matters ranging from retirement advice, healthcare plans and anything pertaining to money. They often cater to high net worth clients with substantial fees differing from broker to broker. It might be a percentage of all transactions or a yearly fee in some cases.

As always, choosing to invest with an online broker or a robo-advisor has its pros and cons. Let us look at a few of them below.

Pros Of Online Brokers

  1. With online brokers, you have more control and flexibility.
  2. You can monitor investments in real-time.
  3. You have access to online tools to help with making informed decisions.

Cons Of Online Brokers

  1. Personal relationships with brokers are difficult because all communication is done over the internet.
  2. Trading is entirely dependent on the internet.
  3. Trading with an online broker could increase your risk of being defrauded. It is important to verify your broker along with any transaction you invest in.

Pros Of Robo-Advisors

  1. They offer an easy to use interface for investors.
  2. Low fees for users
  3. They lower the barriers for investors to enter the stock market.

Cons Of Robo-Advisors

  1. There are no physical meetings with robo-advisors.
  2. Their abilities are limited 
  3. Using robo-advisors could cause investors to become lackadaisical about the decisions they make.

What Does Your Should Budget Look Like?

One myth that has existed with investing is that you will need a lot of money to start. If your finances have been managed well so far and you have savings, then you can work with that. Share prices cost anywhere from a few dollars to thousands of dollars for individual units.

If you are constrained on cash, an exchange-traded fund might as well be your best option. ETF’s as they are popularly called also trade like a stock but are typically below 100 dollars. One might also consider mutual funds.

How Beginner Can Invest In Stocks?

Investing for beginners can be tricky if adequate market research is neglected. It is advisable that you do your homework by researching companies and studying patterns in the stock market.

Crashes are bound to happen but if you plan on holding long-term, this shouldn’t frighten you. In the end, it could be very well-rewarding in terms of dividends like Warren Buffet’s case.

Ready To Start Investing?

After considering all the questions above, you’ve probably felt that you have a grasp of it. Not entirely though, as stocks should not be seen as a way to make fast money. One of the best ways is to invest in the S&P 500 index fund which is available in both the U.S and U.K.

Only acquire individual stocks if you believe in the long-term potential of the company and wouldn’t mind receiving dividends.

It is also possible to make money online through trading as there are platforms where you can buy listed stocks. Such online platforms include Robinhood and TD Ameritrade just to name a few.

You will need to weigh your risk appetite to know where you stand. You might be conservative, moderate or even aggressive as the case may be. Also, consider how long you want to hold before you sell off your stock for profits or a loss in some cases. Next, get a fund manager or a robo-advisor depending on your preference to get investment suggestions for your portfolio.

Work with your budget and do not overspend. After all of these, pick the firm(s) of your choice and put your money to work.

This depends on your tolerance for risk. The safest route to go most times is index funds or mutual funds such as the S&P 500. Again, only invest in individual stocks if you believe in the long term growth of the company in question. 

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