How To Invest In The Stock Market For Beginners
Many hard-working individuals make the mistake of not investing for the future and planning for retirement. They have significant savings in banking accounts, certificates of deposit and money market funds earning little to no interest and being eroded by inflation. Often, the most limiting factor isn't ignorance but fear of the unknown and of losing everything. Every consumer should invest in the stock market even if you are a beginner. Knowledge and experience will go a long way to limiting mistakes and minimizing risks.
Educate Yourself
As everyone knows, knowledge is power and the more you know the better you are able to protect yourself and your money from costly investment mistakes. Learn the basics of investing by reading many of the free online financial resources. What is a stock? What are dividends? What is risk aversion? How much should I invest? When do I buy or sell a stock? There are an infinite number of questions about stock investing which can only be answered by spending countless hours online reading articles and asking questions.
Pick a Strategy
Every investor has their own particular style and it's no different for beginners looking to invest in the stock market. If you have a low risk tolerance, you are more likely to purchase blue-chip stocks with consistent dividends and earnings which are likely to maintain their value. If you're a risk taker, then you may be more interested in putting all your eggs in one basket and buying shares in a couple of tech companies. It is important to know who you are and what you want and pick an investment strategy which matches your goals.
Open an Account
There are two main types of brokerage accounts available to individual investors. Full-service brokerage accounts which offer personalized service and discount brokerage accounts which merely process orders to keep costs down. While full-service brokerage accounts have higher fees, they're usually more appropriate for beginners investing in the stock market. Both types of accounts provide sophisticated research and stock picking tools but with different levels of hand holding and customer support.
Look for Investments
It can be difficult for beginners to determine which companies to purchase shares in when getting started. The best thing to do is read as many financial publications and watch as much financial television as possible. Do not base your investment purchases off of these sources. Instead, use relevant financial news outlets to develop a broader overview of publicly traded companies and industries. Many organizations and industries receive extensive news coverage which can help narrow possible investment opportunities.
Conduct Research
Once you have narrowed your list of possible companies, it is time to conduct extensive research to determine if it is a wise investment. Using various investment tools and SEC filings available online, you can conduct fundamental and technical analysis on a given organization. News outlets often include a lot of hyperbole and rhetoric when discussing corporate and industry trends which cloud relevant facts and pertinent information. Conducting research allows investors to eliminate the noise and, hopefully, accurately determine whether or not stock is sound.
Make a Purchase
After narrowing your selection down to two or three companies, it is time to purchase shares on the stock market. Most stock purchases are made in even numbered lots like 100 or 500. There is an associated transaction fee, often around $9-$15, which will be applied to the purchase or sale affecting your cost basis. It is never recommended to time the stock market as it is normally counterproductive and leads to lower overall returns. A buy and hold strategy is highly recommended, especially when investing in the stock market by beginners, which minimizes risks. Evaluate your purchases periodically to determine if they still match your initial investment criteria. To be successful, don't be emotional about stock purchases and continually learn new and relevant information.
