Investing in company stocks is not the easiest, but quite reliable way to make money. Of course, certain knowledge is required to successfully participate in trading on the stock markets, because you are risking your own money. Nevertheless, you can earn money without a degree from Harvard Business School. In this article, you will learn how to invest in company stocks correctly. Check the exante brokerage reviews, to learn more about this broker, because when you are dealing with stocks, you need a good broker.
How to properly invest in stocks
It should be noted right away that the investment is not suitable for those looking for quick earnings. Of course, there are very successful investments that bring instant profit, but this is rather an exception to the rule. Usually years pass between the investment and the opportunity to make a good profit. Here are 5 key points to consider before entering the stock market.
1. Decide on your investment style
There are actually only two styles of investing. In the first case, you have serious initial capital, which you are not afraid to take risks. You also have an idea of how the securities market works and are able to independently assess the prospects for the shares of companies. In the second case, you want to try your hand, but do not have the appropriate experience.
In the first case, you just need to choose a broker and start trading. If you consider yourself to be in the second category, then first you should use the services of a robo-consultant. Most large brokers provide this opportunity.
2. Open an account
Of course, the first step is to open an investment account, which will allow you to become a full-fledged player in the securities market. If you are confident in your own abilities, then open a regular brokerage account. For those who have doubts, special accounts are provided, which are fully (or partially) managed by robo-consultants.
A brokerage account makes you a full-fledged trader, but it imposes additional responsibilities. For example, you will have to deal with taxes on your own, which is quite problematic for untrained people. On the other hand, there are accounts managed by robo-consultants. They also allow you to invest in stocks, but do not require the owner to do analytical and calculation work.
3. Find out the difference between stocks and mutual funds
After opening an account, you will have two options. You have to choose between investing in the stock of a particular company and investing in a mutual fund.
Individual promotions. You can buy shares of a particular company, in the future success of which you have no doubt. This option is suitable for beginners, since analytics boils down to studying the state of affairs of just one player.
Mutual funds. This implies the acquisition of a portfolio of shares of different companies. Thus, you become the owner of small parts of several players, therefore you are forced to analyze large volumes of information about the companies in which you have invested. Of course, this requires certain knowledge and skills. On the other hand, in this case, the risk of losing everything is minimized.
4. Decide on your budget
It’s worth starting with small amounts. Try investing a few thousand dollars to get started. This is a significant amount that will prevent you from taking the investment lightly. On the other hand, if you fail, you won’t lose too much. If you are planning to invest really big money, then give preference to mutual funds. It is not worth investing more than 10% of the budget in shares of individual companies, since the risk of failure is quite high.
5. Start investing
The securities market is a place where the struggle between ingenious strategies continues, but most successful investors managed to get rich from the beginning without being financial geniuses. So just rely on your knowledge and intuition. You will probably be the one who will be able to join the company of the aforementioned billionaires.
3 reasons to start investing in stocks
Now you know how to invest in stocks, but you probably still doubt the wisdom of this venture. First of all, investments are necessary, since absolutely all world currencies are depreciated. On the other hand, stocks of promising companies may rise significantly in price over time. Here are 3 good reasons why you shouldn’t be afraid of investing in stocks.
1. Stocks have the greatest upside potential
Despite the regular turmoil in the investment market, company stocks have higher upside potential than bonds and other securities. To be convinced of this, it is worth studying the history of the stock market. In its modern form, it began to exist in 1926. If you had the opportunity to go back in time and invest the conditional $ 100 in an average portfolio, then today they would turn into 726 thousand.
2. The fall of the stock market is always a temporary phenomenon
Throughout the history of its existence, the stock market has experienced quite a lot of very deep crises. Today, things are also not in the best way, but in our case it is even good. The fact is that long-term investments during a crisis can bring huge returns. Let’s get back to history again. If you had invested in American stocks during the Great Depression of 1932, your capital would have increased by 367 percent in five years. With the 2009 recession, the situation is similar – 178 percent of profit over 5 years.
3. You are not required to invest all of your capital in stocks
Before investing in stocks, you should divide your capital into several parts and decide on an investment strategy. A conservative strategy assumes long-term investment of about 15 percent of the investment, and an aggressive one – at least 50 percent. There are also intermediate options with an investment of 20-40 percent. In addition, it would be wise to set aside a small portion of the capital for short-term investments.
Of course, investing in stocks should be done with caution, since we are talking about fairly serious amounts of money. Nevertheless, by choosing the right strategy and investing in several types of securities at once, you will protect yourself from crises, which will allow you to look to the future with confidence.
