How to Invest in Stocks: A Finance Guide for Beginners

How to Invest in Stocks: A Finance Guide for Beginners

Through the growing popularity of stock investment applications, such as Robinhood and Charles Schwab, low-cost stock trading has become a normal practice.

Online and mobile applications like these have broken down the exclusive “brokers only” barrier for investing in stocks.

Are you trying to start investing in the stock market, but aren’t sure where to begin?

Read on for a full finance guide if you are interested in growing your personal finances through the stock market.

How to Invest in Stocks: A Finance Guide for Beginners

Why Start Investing in Stocks?

A stock is a security that represents a fraction of partial ownership in a company. Stocks are an individual investment into a company and that company’s profits. Stocks can be a profitable venture when you receive a return on investment through a company’s success.

When a company goes public, they sell small shares to investors to help fund growth and expansion. By selling shares of their company, they are able to generate more funds and can potentially maximize investors’ returns. Stocks can be a risky venture because if a company is unsuccessful, investors’ share values can drop below that of their initial investment.

Stocks can become an invaluable part of an investment portfolio. By investing in different companies, you can help to build your savings. Through investments, you can protect your finances from inflation and taxes to maximize your investment.

Investing in Stocks vs. Funds

Another method of investing is to put money into mutual funds. Mutual funds are a portfolio of investments. Unlike stocks, which are an investment into a single company, mutual funds are a collection of many investments that are typically managed by a professional.

Investing in mutual funds is best if you want a quick way to get engaged in the stock market. This can allow you to invest and diversify your portfolio with a single action.

If you like the idea of hand selecting the companies you support, you are better off putting your money into individual stocks and slowly building up your own investment portfolio.

Different Types of Stocks

Companies that seek to raise funds for their company do so primarily by selling two different types of stock: common and preferred stock.

Common Shares 

Common share stocks are securities that represent partial ownership in corporations. Common shareholders can monitor their stock’s progress as their value goes up or down over time. Shareholders are able to cash out or move around their investments to ideally sell their shares at a profit.

Preferred Shares

A preferred share is a type of stock that is a combination of features that common stock does not possess. These stocks behave primarily like bonds with a set dividend and redemption price. These set prices make preferred stocks a reliable stream of income for investors.

Preferred stock owners have no voting rights because they are taking a lower risk option in investment. Preferred stock shareholders are able to receive a steady dividend distribution as a company’s value grows. These shareholders are receiving a slow and consistent series of returns.

Finance Guide for Beginners

Investing in the stock market can be a great opportunity to maximize your annual earning potential. By following this finance guide, you can start boosting your income by developing your stock portfolio.

  1. Determine Your Investment Style

To take the next step in furthering your personal finances through investments, you need to decide what kind of investor you are going to be. You can pick and choose which stocks to invest in and the level of direct involvement you would like to have in building your investment portfolio.

How much time you want to dedicate to investing can help you decipher how active you want to be as an investor.

  1. How Much Are You Willing to Invest? 

The stock market is used to help individuals grow their savings through multiplying excess funds. Although effectively using the stock market can increase your personal finances, there is too much risk associated with stocks to depend on a steady flow of income as a result. You should not spend money allocated for rent or other essentials on buying stocks.

Money that you may need in the more immediate future is better invested in high-yield savings accounts. This is a more low-risk way to set aside money than investing in stocks.

Investment Account Minimums

Investment services and stocks place a minimum investment threshold on many of their stocks and services. The minimum investment is the smallest price or share quantity that a prospective investor can acquire.

Investors are required to shop around for companies that offer shares that are within their investment budget.

Employer Investment Opportunities 

If you have a small investment budget, rather than aspiring to invest in large companies with high minimum investments, you can work with your employer to invest into your own retirement.

If you work for a large company that you would like to obtain stock in, ask your employer about an employee stock purchase plan (ESPP). ESPPs allow company employees to purchase stock through payroll deductions. These stocks are told internally at a discounted share rate and can allow you to take partial ownership of your work.

  1. Decide What Investment Platform Works Best For You

An investment platform is an online service that allows individuals to buy sell and hold funds in the stock market. It’s possible for you, as an individual, to be a user on these platforms, or for you to have a financial advisor or broker who will invest on your behalf.

The investment platform that works best for you depends on the size of the portfolio you want to create, the level of outside advising you’ll be receiving, and the average price of the stock you are interested in.

  1. Seek Out Investment Advising 

When you are getting started in investing, seeking out advising services can be a great asset to help you thrive in the market.

Financial advising and lending services, such as Plenti, can help give you the necessary information and tools to be smart with your money. These services help to explain changes in the stock market and help new investors quickly get over the learning curve of joining the stock market.

Online Brokers

Brokers get paid a commission for helping clients buy and sell investments such as stocks, bonds, and mutual funds. Brokers are able to make money by charging for each trade or collecting a list of set fees from their clients. Brokers are knowledgeable about upward stock trends and can provide insight as to where to invest and when to pull out of a particular stock.

Online brokers can be used for either full service or discount services. Full-service brokers will take control of your entire investment portfolio and provide advice on strategic moves to boost your earning potential. Discount service brokers can be enlisted to educate you about potential stock opportunities, but they primarily just help you along with the tools to navigate the stock market.

Robo-Advisor Services

Robo-advisors are digital platforms that provide automated financial planning services with minimal human supervision. Through data collection and algorithms, Robo-services can help track trends in the market and show you potential earning projections. Robo-advisors are a very low-cost tool to make more informed decisions on the stock market.

  1. Research and Diversify Your Stocks

When purchasing your initial set of stocks, it is important to invest in a diverse set of companies. By investing in a wide array of companies in different sectors of industry, you can easily recover if one investment or a certain industry sector’s performance plummets.

You need to continue to research and keep tabs on the company performance of industries you have invested in so that you can best predict when to cash out of stock or move around your assets.

Reduce Risks 

Diversifying your stock portfolio can help to reduce the risk of large losses on the stock market. By spreading out your investments, you can adapt quickly to a sudden fall of a company you have purchased stock in.

  1. Manage Your Portfolio and Continue Investing 

Every day, while the market is open, stocks are bound to undergo a series of dips and jumps. Although monitoring your stocks is important for effective management, you can’t worry about daily fluctuations. You want to move your stocks according to long-term upward or downward trends.

Stock investing is an intricate way to boost your financial capital. It is important to be looking at individual stocks as long-term investments and to not immediately sell once there is a hint of loss.

It can be difficult to refrain from pulling out of stocks or mutual funds once you see a loss of value. Daily engagement with your portfolio is an unhealthy and compulsive habit called day trading. This may yield fast money in the short term, but it is not ideal for a long-term investment opportunity.

Maximize Your Earnings Through Strategic Investment

There is both nuance and strategy to stocks that is more than just buying low and selling high. By educating yourself on the nuances and trends of the stock market, you can make informed decisions on where to buy, sell, and trade stock. Through low-risk investment strategies, you can boost your capital and save for the future.

By following our finance guide, and being intentional with your investments and effective research and monitoring, anyone can maximize their excess funds to boost their income.

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