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Investing in stocks is a great way to accumulate fortune. However, starting can be a bumpy process for those who are uninitiated. We have mentioned in the previous article on “what are stocks” that stocks represent a unique opportunity for investors and generate higher returns that bonds, having average at an annualized return rate of 7-8% vs 5-6% for bonds. But one should be extra cautious when investing in stocks, as it requires substantial level of knowledge of technical and fundamental analysis, basic accounting principles and a small piece of luck. This article strives to outline the basic principles that future stock investors need to follow on order to make their first steps on the stock market a smooth and pleasant experience.
Follow these steps to learn how to invest in the stock market.
How to easily invest in stocks?
There are several ways to approach stock investing; you can manage everything by yourself or choose someone to manage everything for you. Beginners in the field are not advised to take the first option and should instead concentrate on taking individual advice If necessary. Regardless of which way you believe is appropriate relative to your goals and level of experience, you will need an account with stock broker to start. Choosing a broker is a sensitive process and involves many variable that everyone should take into consideration before making a choice.
How to start investing in stock market
Once you have arrived at decision to start investing money in stocks, you need to choose the stock market-related investment vehicle. Investors can get into stock market by choosing one of the following investment vehicles:
- Mutual funds. Stock mutual funds are investment vehicles which in essence are pools of money raised from various individuals which and allocated in different stocks. Mutual funds increase your exposure to stock market by buying different stocks within one single transaction. Index and Exchange Traded Funds track and index and chancel money from the pools into stocks represented in the index. Investing in several funds can greatly mitigate risks and diversify your portfolio.
- Individual stocks. If you are interested in investing into a specific company, then looking for individual stock purchases is your way. However, this requires more diligence and research as individual stock prices are inherently volatile and may not move in line with listed indices.
Both types have upsides and downsides. For example, putting your money into mutual funds can greatly reduce the risks, as these instruments are vernally less volatile. On the other hand they are unlikely to bring you substantial profits within short period of time as some individual stocks might do.
Individual stocks may be rewarding and pay off fast, but at the same time can fall sharply wiping out your investments. As such, the prospects that individual stock will make you notoriously rich are catastrophically low.
The overwhelming majority of stock investors — especially those looking for retirement savings — are concentrating on mutual funds as main part of their investment portfolio.
How much do I need for start?
Understating how much capital you need to start investing in stocks is one of the first tasks that new investors face. First things first, the amount of capital needed to invest depends on type of investment vehicle you want to invest in. For individual stocks, prices may range from couple of bucks to six-digit figures, while mutual funds usually set the minimum deposit requirement of $1000 or more.
Where can I invest in stocks ?
In order to start investing in stocks, you need to choose an online stock broker to invest in stocks, mutual funds, etfs and other instruments. When selecting a brokerage account, you’ll want to evaluate them based on factors like costs (trading commissions, account fees), investment selection (look for a good selection of commission-free ETFs if you favor funds) and investor research and tools. Some notable stock brokers are : AllyInvest, E-Trade and TD Ameritrade.