Stocks are probably the most well-known subject of trading on stock exchanges, so we even had to finally talk about this topic. If you are wondering how to invest in stocks, you have arrived perfectly! In this article we will try to include some of the most necessary tips, but do not treat it as financial advice, because every decision related to money should be made entirely on your own.
What exactly are stocks?
In one of our previous articles, we already wrote that shares are documents confirming that the holder owns a certain part of a company that has decided to sell these shares. Companies issue shares mainly to finance new investments or simply to expand. Although in the past, shares took the form of paper documents, these days it is quite different. Shares are now a digital record, and you will need a brokerage account to invest in them.
Where can I invest in stocks?
The first step, of course, besides raising money for your investment, will be to set up a brokerage account. There are many companies that offer them, and there's also a good chance that you can open an account with your current bank. Once you're a brokerage account holder, you'll probably need to verify it using a scan of your ID. It's completely safe to do so, and companies that offer accounts must do so because regulations in most countries around the world require it. Once you have a verified account, it's time to deposit your money and start investing!
How much money do I need to get started?
If you already know how to start investing in stocks, it's time to put this knowledge into practice. In order to move comfortably in the stock market, you should have enough money to invest in at least 5 different stocks. You can buy them one at a time or a few at once, but it will be a bad idea to put all your savings in one kind.
If you decide to invest in large companies such as Google, Tesla, Apple or Boeing, you will need hundreds of dollars. However, there are many smaller companies that also allow you to rake in good returns, and by the way, their stocks are much cheaper. The decision on which companies to invest in is entirely up to you.
If we were to give specific amounts, it would probably be around $500. Of course, you can invest smaller amounts, but remember that brokers charge commissions on turnover, and with small amounts of investment, this can be a really big part of the total. A safe value is about $2,000, because such an amount allows you to build an interesting and diversified portfolio. However, avoid large investments to begin with. If you don't have much knowledge, investing $50,000 or $100,000 means a huge risk of loss.
Is it possible to invest in stocks passively?
If the stock market seems difficult and incomprehensible for you, don't worry! It's perfectly normal for beginners, and even experienced investors like Warren Buffett admit that they don't know everything. If you don't feel confident in choosing stocks for your portfolio, you can always invest passively, for example, using ETFs. If you want to learn more about this topic, be sure to check out our article about the differences between passive and active investing.
Stocks or gold?
Our loyal readers are surely already familiar with the article concerning gold that appeared on our blog some time ago. You may now be wondering what would be a better choice for you. The answer is not simple, as it is akin to choosing between steak and ice cream. Both are tasty, but they are different in many ways.
Instead of limiting yourself, it will be a good idea to invest in both! In the previously mentioned article, we wrote that it would be safer to buy gold in physical form, that is, coins and bars, but there are also opportunities to invest in gold-related CFDs. Since you already know how to invest in stocks, you also know how to invest in gold CFDs, because the process looks analogous and you can use exactly the same brokerage account for this. Isn't it simple?
What stocks to invest in?
There are many stocks on the markets. Only in the U.S. are more than 6,000 companies with shares available on stock exchanges. Which ones should you choose to make the most money?
In our opinion, if you don't know what stocks to invest in, a good idea would be to focus on the so-called blue chips, which are large, stable companies. These include firms such as IBM, Ford, Apple, Goldman Sachs and Nestle.
Big companies, thanks to their large market value, have stable prices. Their prices do not rise sharply and fall less than those of small companies.
Of course, you can also invest in shares of smaller companies, but keep in mind that price fluctuations might be drastic. Always take into account the economic situation. A crisis is likely coming, and this means that many sectors will see huge declines, which could reach 60% or even more. Are you ready for such mental pressure?
How much will I make on stocks?
The profitability of your investment will depend on many factors. You already know how to start investing in stocks, but you don't know about many occurrences that you may encounter while investing. This knowledge you will acquire with experience.
Although, according to statistics, the average annual return on investing in stocks in the US is 10.2%, you will achieve a little less at the beginning. Still, investing in stocks is likely to be much more profitable than even the best savings account.
Are stocks a good investment for the future?
If you're thinking about buying stocks, think about it in the long term. Stocks are a good way to build your retirement savings, especially if you are a little over 20 or 30 years old, because over the next years, they will earn you a lot of extra money.
If you have a spouse or permanent partner, you may be wondering how can 2 people invest in stocks together and whether it is legal. Fortunately, it is! In many countries, you can set up a joint brokerage account that will allow you to access your investments together.
Investment in expertise
To invest in stocks in a successful way, you need to know what you're doing at the beginning. Before you decide to invest your hard-earned money, focus on acquiring a solid knowledge of investing. Even if you spend $200 on books and courses, which is a pretty hefty sum, there's a good chance you'll avoid losses that could reach thousands or even tens of thousands of dollars.
In addition, knowledge about investing is a good way to self-development and it is an investment in yourself. Any skill can be monetized these days, which can further increase your income. We hope you found our article on investing in stocks helpful. If you are interested in financial topics, read other articles on our blog. See you soon!