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A number of people are doing very well when it comes to their careers and salaries but are intimidated by investing in stocks or other financial instruments. This is a natural feeling because it is not easy to risk your money on something you don’t fully understand.
The first step, just like any activity that rewards you in the end, is knowledge. You will find many books, articles, and even courses on stock investing. You are here because you want to get started with stock investing.
One of the biggest favors you can do for yourself is investing early. This is because your money will have a longer time to grow. Earlier investors have the chance to see their capital grow significantly from the time they invest to the time they withdraw their money.
Here are the steps you should follow when you are starting off in the investment world.
Check your financial goals
Companies have roadmaps and mission statements to guide them toward the desired end goal. The relevance of this is to ensure that the companies stay on course. The same should be done by people who want to start investing.
You need to take a 360-degree look at your financial status. You need to make sure that your financial status will allow you to accommodate your new activity. Consider the following:
- Income – you may be getting your income from your business or job. Be sure that your source of income is steady and will able to support your investment activities.
- Debt – having a healthy debt should not be much of a problem. However, if you have a significant amount of debt, it may be wise to sort it out first before you invest in anything else. You should not use investments as a way of raising money to pay for your debts. Things can go wrong anytime.
- Budget – draw up your household budget so that you know how much money you can invest per given period.
It is advisable to know your goals and understand why you want to start investing. Ask yourself if you are investing for:
- Short-term goals: say less than five or six years
- Retirement
- Yourself or your family
These three questions are very important for a new investor because they determine the decisions you make along your new journey. There is no need for you to have knowledge of the stock market or other assets you want to invest in.
These personal questions can only be answered by you. Answer them truthfully because they will help you to get closer to your goals.
Investing works better if you are not looking to cash out in the next five years. It works best if you are doing it for the long-term.
You need to have cash reserves before you put your money on the line. This is money that you set aside for the rainy day and it should at least, amount to three months of your expenses.
The purpose of your reserve fund is to keep you going in case you lose your income stream. It also cools you down when your investments are not performing well.
Education
Some people say that do not buy a book for a person who can’t read, unless if they want to learn to read. The moral of the story is that no matter how good a book is, it is of no use to someone who has no reading skills.
Don’t be an investor who is clueless about the financial markets or assets he wants to invest in. You may not have a degree in finance or economics but it doesn’t mean that you should risk your money blindly.
Some of you choose to be passive investors and leave everything in the hands of your brokers. This is good but you are hinging your success upon someone else’s decisions. You should at least have a say when it comes to your money.
There are various articles on the internet that can get you started on stock trading or investing. This detailed guide on how to invest in Singapore is a good place to start and it takes you right to the heart of your various options in investing.
There is no substitute for knowledge.
Portfolio diversification
You may be tempted to buy the stocks of your favorite company when you start investing. But there is a better way to do it. It’s called diversification.
Diversification is the most important thing because it reduces your risk. It’s needless to say that you have previously been warned not to put “all your eggs in one basket.”
However, you must know that diversification in stocks is difficult because investing in a number of stocks is costly. This is why beginning investors, especially with low capital, only invest in two to three companies initially.
This is where the benefit of investing in mutual funds or exchange-traded funds (ETFs) comes in. Think of them as a diversified portfolio with an assortment of stocks in them. They are much better than a single stock.
Open a brokerage account
The stocks you buy will be administered through a broker. You can now shop for online brokers like you would for hotel accommodation.
There are two types of brokers: full-service brokers and discount brokers. Full-service brokers are expensive and they justify that by claiming to offer you custom advice tailor-made to address your specific needs. Their clients are usually high-net-worth individuals.
Discount brokers are much cheaper and give you tools to place transactions at your own times. The brokers have added more features to their software, making it easier for people to learn about stocks and executing trades.
You should find a broker that meets your needs. You must consider the following when hunting for a broker:
- Trading fees
- Features and tools
- Minimum deposit required
- Customer services
- Online reviews
Final thoughts
Investing in stocks is an exciting journey filled with ups and downs. Your success will largely depend on how you are prepared for it and how you are willing to adjust. Remember that the earlier you start, the better.
