The stock market might seem complex and intimidating, but it is actually very easy to get set up and start buying your first stocks. However, while it is easy to enter the market, making the most of your money in the stock market requires serious consideration. If you want to invest in the stock market, you’re in the right place.
We will walk you through the basic process of how to open an investment account, decide your budget, explore the options available, make your first orders, and manage your positions. By the end of this article, you should have the knowledge to invest in stocks with confidence!
How to Invest in Five Steps:
- Educate yourself on assets and strategies
- Make a list of good investments
- Decide on your retail broker
- Send your first order
- Monitor your portfolio
Educate Yourself on Assets and Strategies
Just a little bit of preparation can go a long way when it comes to investing in the stock market. Educating yourself using stock market simulators on the different types of products in the stock market and the different approaches to investing will give you a massive advantage.
First, if you haven’t already, you should learn what stocks are and how they work. Next, you should learn about all the different asset types on the stock market, including common stock, dividend stock, preferred stock, and the many different types of fund products.
Once you have a good layout of what’s available on that stock market, it’s a good practice to begin researching the most common investment strategies. This includes value investing , growth investing , momentum investing , dividend investing , dollar-cost averaging with fractional shares, and lump-sum investing .
This may seem like a lot, but really taking the time to learn the ins and outs of the stock market will give you a serious advantage when it comes to growing your money. You can find the assets and strategies that work best for you and really maximize the potential of your money.
Make a List of Good Investments
Now that you have an idea of what you can buy and the best strategy for investing, it’s time to start searching the market for your investments.
A good approach to discovering valuable companies is a data-driven approach. There are many online resources that create lists of stocks based on certain metrics. The metrics you choose will depend on your asset types and investment strategies.
Here are some examples:
- Top performing equity funds
- Fastest growing biotech companies
- Most consistent large cap stocks
- Highest dividend paying energy funds
Punching a criteria like this into your search engine will give you several lists of the stocks or funds that meet your criteria. Load several of these lists and cross-reference them to find companies that have the potential that you are looking for.
Next, begin researching the fundamentals of these companies. An important financial metric is Return On Equity (ROE), which measures a company’s profitability. If the ROE is high and consistent, then it’s a sign of a healthy company worth investing in. For funds, review the performance of the fund over time and how consistently profitable it is each quarter and year.
For many investors, beating the market is a daunting task. You can budget some of your investment towards picking individual stocks, but you can also invest in an index fund to simply track the gains of the best stocks in the market. You can also invest in high performing asset pools like ETFs and CEFs that are already beating the market.
Decide on Your Retail Broker
It’s important to first understand the stock market, asset classes, investing strategies, and to use this understanding to build a list of investments. Retail brokers each come with their own benefits, features, and market assets. If you already have your investments planned out, then it is easier to choose a retail broker.
Before you go searching for your ideal retail broker, you must understand that not all retail brokers are legitimate. Many will offer attractive deals on margin, unrealistically projected trading systems, or similar deals that may seem too good to be true. Disreputable retail stock brokers have been around for a very long time, and they are often referred to as “bucket shops.”
It’s important that you select a broker that already has an established reputation and a large base of customers. While there are many more than listed here, these are a few retail brokers with comprehensive platforms and established clientele.
- TD Ameritrade
- Fidelity Investments
- Charles Schwab
These are the largest retail brokerage firms in the United States, but there are many more to choose from. Your broker will often be a regional business in your country, and these are mostly good options if you live in the United States.
Send Your First Order
Alright, you’ve got a grasp on the stock market, you’ve picked a list of investments, and you’ve set up your first retail brokerage account. Now it’s time to actually send your first order and make your first purchase.
A crucial aspect of investing is money management. You want to ensure that your investing portfolio is well-diversified, and you can do this by only allocating 5% to 15% of your portfolio into each asset.
There are two main ways to make your first order. The first is a market order which will execute immediately at the current stock price. The second is a limit order which will execute only when the stock reaches a predetermined price. The first is good if you want to invest immediately, and a price limit will allow you to invest more strategically if you want to ensure a future movement.
Select your first chosen asset in your retail broker’s investment interface. Enter the fixed percentage of your portfolio as the equivalent amount of shares in your chosen asset. Once you’ve entered everything and selected buy, then you will likely get a final confirmation window with the final terms of your order.
If everything looks good, then confirm the order and send it. Once the order fills, your account balance will change to reflect the purchase and the investment interface will start tracking your shares and their profit and loss (PNL).
Monitor Your Portfolio
Congratulations! You are now a shareholder and investor in the stock market!
However, this is only the first step of investing. What comes next is the careful monitoring of your portfolio and your potential PNL. If your stocks do well, then you will begin to see a profit. If your stocks perform poorly, then you will begin to see a loss.
A good rule of thumb is to cut your losses early and let your profits run. Remember earlier that good risk management means not holding on to losses that risk around 1% to 2% of your portfolio in losses. It’s difficult to pull the trigger on a loss, because the actual loss of money in your account is not real until you sell. However, disciplined risk management is crucial.
It is better to take a small loss and continue making profits in the market than to take a huge hit and face a very steep or untenable recovery. Same with making profits, do not get excited and take your profits early if the general trend is continuing. Let your profits grow until it is clear that the price has run its course.
Stick to your chosen investment strategy. If you are a value investor, keep tracking fundamentals and use that to manage your portfolio. If you are a growth investor, then monitor ROE and ensure your portfolio is growing quickly.
In every case, stick to your strategy and don’t let emotions influence your investing decisions. That is the most important challenge for any investor. If you are well-informed and disciplined as an investor, then you will be able to make good profits with your hard-earned money.
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