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For hundreds of years, people have invested their time and money in stocks. Nonetheless, there are still a lot of misconceptions about investing.
Many people believe investing in stocks is too complicated for an everyday person or that it’s only for the wealthy.
Luckily, those are both false as anyone can invest in stocks. What’s more, investing is easier today than ever before as there are plenty of online trading platforms perfect for beginners.
If you’re interested in getting started investing, the following will provide you with the base you need
Table of Contents:
1. What is a Stock?
Before you begin investing in stocks, you need to understand what they are. A stock is a tangible asset that you can purchase and maintain for as long as you wish.
The stock signifies that you own a fraction of the company.
When you invest in a company and you own part of their stock, you become a shareholder. Essentially, you’re buying part of the company because you believe it will grow, and you want to join the growth.
The term share is often used interchangeably with stock, although they don’t mean the exact same. When you own stock in a company, you own some number of shares.
Each share has a price that continuously fluctuates throughout time as it both increases and decreases in price based on company news, financial reports, stock market actions, and more.
2. Why Invest in Stocks?
People invest in stocks for several reasons. The first and most obvious motivation for investing is to build wealth. Rather than keeping money in a bank account, you can let your money work for you.
As you invest in stocks, you’re lending money to companies that will, ideally, grow and increase the worth of the stock you own.
Secondly, investing in stocks protects your money from inflation. If your money is sitting in a bank account, the interest it earns may not keep up with interest rates. The average inflation rate in the UK in 2020 was 0.85%, however, in 2018 and 2019 the inflation rates were 2.68% and 1.79%, respectively.
If you compare these values to some of the best savings accounts in the UK—accounts from 0.65% to 1.86% at best—it’s evident how a typical savings account may not protect your money against inflation.
Another popular reason people invest is in stocks is to take advantage of companies that pay dividends. Many, but not all, companies will pay dividends as a means to share their profit with their shareholders. Dividends are typically paid every quarter, and the amount you’re paid is determined by how many shares you own.
3. When to Start Investing?
As the common saying goes, the best time to invest was ten years ago; the second-best time to start investing is today. While investing is a bit more complicated than that, there is some truth to the saying. With that being said, here's how to start investing today.
You don’t need to have tens or hundreds of thousands of pounds in the bank before you can start investing. Rather, you can start investing today with whatever money you have that doesn’t need to go to immediate bills like rent, food, etc. The best way to determine how much to invest is to make a budget.
Track your spending over a few months compared to your earnings and see what you have leftover. From there, you can specify an amount to maintain in a savings account for emergency expenses—many experts recommend 3-6 months of living expenses. With the income you have left, you can begin investing.
It’s important to be sure that you’re not putting too much money into your investments to where you’re left with barely enough money to cover the bare necessities. You must take into account miscellaneous spending when you make your budget.
This can include dining out, clothes, cinema or sporting event tickets, and other areas where you’re likely to spend each month.
4. Where to Invest?
Once you know how much money you have to invest, you get to the fun part—actually investing. To figure out where to invest, check out this post of best investing platforms to get a deep dive into various platforms. Your options are virtually limitless.
If you already have a savings or a retirement account through a platform like Fidelity, Halifax, or Evestor, you can open another separate investment account.
5. Investing Strategies
After choosing a platform to begin investing in stocks, you need to know how to trade.
There are several strategies when it comes to investing, and the right strategy for you will depend on what you wish to achieve.
Similarly, depending on your age, you’ll likely have different goals. If you’re young and wanting to save for retirement or a major purchase down the line, investing your money to grow your wealth is likely what you want and what you should do.
On the other hand, if you’re close to retirement, it may be better to invest in stocks that can provide you with additional income. In this case, investing in stocks or portfolios that are dividend-oriented can help provide extra income each quarter.
As a beginner, you’ll likely want to find an easy and safe means of investing. While it’s possible to do your own research on emerging markets to find the next Amazon or Google, it’s much riskier. Rather, investing in companies that are well-recommended and safer to invest in might be the best decision for long-term growth.
For example, investing in companies such as Berkshire Hathaway, Walt Disney, JP Morgan & Chase, and AT&T are known to be safe investments and are recommended for beginners. This type of investing is known as blue-chip investing as the companies are established, reliable, and have a promising future.
6. Purchasing Stocks
When you’ve done some research on the stocks you want to purchase, you can start making these trades. With your chosen investment platform, you’ll likely have various options when it comes to buying stocks. The following are the most common options people use when buying stocks.
Market Order 💰
A purchase option where you ask to buy x number of shares as soon as possible, regardless of the price.
Limit Order 📊
A purchase option that allows you to specify the highest price you’re willing to pay. The order will be filled at this price or below the price.
While there are additional options for purchasing stocks, these are the two easiest methods to get started with.
7. Selling Stocks
Similar to purchasing stocks, you have several options for selling stocks. The following are the most common and easiest methods for selling.
Market Sell 📈
A market order that tells buyers that your stock is available at whatever the current market price is. Once you confirm the sale, your stock will be sold virtually instantaneously.
Limit Sell 💵
A market order that allows you to specify the lowest price at which you’re willing to sell your stock. If you place a limit sell order to sell 5 shares at $15, but a share is currently priced at $14.50, your shares will not be sold until the price reaches $15.
8. Alternatives to Investing in Stocks
While many people think of individual stocks when they think of investing, there are plenty of other means to invest—you don’t have to buy and sell individual shares to grow your capital.
Investing in Funds 💰
Investing in exchange-traded funds is a common way to invest in the market without having to worry about picking the right stocks and diversifying your portfolio. When you invest in an ETF, you’re investing in a portfolio of stocks chosen and managed by professionals.
For example, if you chose to invest in the Schwab S&P 500 Index Fund, you’d be putting your money into a portfolio composed of stocks that are managed by Charles Schwab. Funds like this one will contain a certain percentage of numerous stocks that are found on the S&P 500 such as Google, Apple, Amazon, and Facebook.
Investing this way means you can own a small part of each of these companies without having to buy a full share of each.
Investing in Cryptocurrency #️⃣
Another common alternative to investing in individual stocks is to invest in cryptocurrency. To do this, you’ll have to find a platform that includes cryptocurrency trading, as not all of the major investing platforms do.
Through a cryptocurrency exchange, you can purchase and possess various cryptocurrencies such as some of the big names like Bitcoin and Ethereum.
It’s important to point out that cryptocurrency investing may be risky, and it’s highly recommended that you do thorough research about the currencies and technologies before making any purchases.
The Bottom Line
One of the best decisions a young person can make is to start investing early. However, that doesn’t mean downloading a basic trading application on your phone to put money into any company on the platform. Rather, you should take your time to read further into investing strategies, stock profiles, and much more.
That way, you can invest safely and intelligently to protect and grow your money for the future.
While you log in to your online trading platform to view your portfolio, you should be concerned about your online safety, especially if you’re using public WIFI. If someone manages to get access to your account information, you could lose all your investments.
If you want to protect your online data, consider using a quality VPN to give you an extra edge in online privacy.