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How to Invest in Stocks?

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by John Caroline · 6 min read
How to Invest in Stocks?
Photo: Unsplash

Investing in stocks is one of the vital financial activities investors opt for. This might be challenging for beginners who do not have any previous experience and knowledge on how it is done. Here’s a guide to provide full details on how to invest in stocks.

Stock is undoubtedly one of the most popular financial instruments for investing in the financial market. The idea of investment started equity investment and it has outpaced the investment of other assets for so many years. To invest in stocks simply means acquiring a small share of ownership of a public limited company. These shares are what are regarded as stocks, when these companies progress in their sales, purchased stocks become more valuable to invest in.

Although, investing in stocks sometimes might involve a few complexities depending on the type of stock involved. Yet, stocks have proven to be the most preferred choice of many investors. Stocks have performed so well that new and old investors who seek to journey to their financial freedom and grow wealth have always opted for stock investment.

Unfortunately, a poor understanding of how to invest in stock might lead to a terrible experience which implies a high tendency of losing one’s funds. Investors should understand the basic prerequisites for stock investment, they also should be able to understand the stock market, know which type of stocks to invest and lots more.

A good understanding of how to invest in stocks predicts a successful investment process that guarantees good returns in the long run.

Why Invest in Stocks?

A common reason why anyone would want to invest in stocks is to acquire wealth. Investing in stocks is a simple secret to wealth making, and it is most interesting that it allows you to acquire wealth without working.

Stock investment only requires putting cash to work. This implies trading one’s money for more money. It is interesting how investing in stocks eliminates the need to sell one’s time and energy for money. Stock investment is more like a convenient and effortless money-making process that guarantees good returns. It is as simple and beneficial as it sounds.

As such, anyone who seeks to journey their way to financial freedom and accumulate wealth in the long run without the need to sell their time and energy for money should opt for stock investment.

Steps of Investing in Stocks

Investing in stocks might appear challenging a little, but it is not as complex as it may seem. Beginners can easily invest in stocks via the following simple steps.

  • Figure out the investment approach that suits you best

The question is how to start investing in stocks as a beginner. Thus, new investors start the whole process by first choosing an investment approach that would work for them more. There are three approaches to investing in stocks which include individual stocks, index funds, and Robo-advisors. Investors would decide which approach to adopt depending on their personality and the circumstances surrounding them.

Individual stocks are a good option for investors capable of committing themselves to strict evaluation of stocks. This would require them to personally make thorough research continuously. As such, intending investors who cannot take out their time to do research nor do some rigid mathematical calculations should not consider opting for individual stocks.

Index funds are another option for beginners who want to venture into the stock market. Beginners can invest in index funds as they help track the stock performance of their underlying indexes. They help measure indexes that are making good returns, hence helping investors build substantial wealth in no time.

The last investment approach deployable for intending investors is the Robo-advisors. This approach involves the service of a broker or a brokerage firm that makes investments in index funds on behalf of investors. These Robo-advisors help select investment plans that best suit the intending investors while optimizing their tax efficiency and making changes overtime automatically.

  • Determine your investable funds

Setting out the funds to invest in stock is a very critical stage that requires necessary considerations. It is important for new investors to know that not all funds are investable so that they won’t fall out in the short run.

Over the years, it has been difficult to predict a rise in stock prices in the short term. Meanwhile, there is a lot of certainty that the stock market will rise in the long run.

Having this in mind, investors should understand that only funds that would not be needed in about five or more years to come are investable. Otherwise, it might not yield a good investment experience for them.

  • Open a brokerage account

This is regarded as one of the most important criteria for investing in stocks. It is very necessary that all beginners who seek to venture into the stock market own an investment account for themselves.

A brokerage account offers investors a very quick and least expensive route to possessing stocks, funds, and a variety of other investments. These brokerage accounts are often provided by companies like TD Ameritrade, E*Trade, Charles Schwab, and many others. Moreso, they can be easily funded through EFT transfer, by mailing a check, or by wiring money.

There are different types of brokerage accounts, investors’ reasons for Investing in stocks, and how often and easily they want to be able to access their funds should determine which type of brokerage account to open. The types of brokerage accounts available for investors include individual retirement account and standard brokerage account.

  • Choose a preferred stock and start investing

This is the major reason behind the aforementioned steps. Investors who have critically examined the whole factors surrounding stock investments and have chosen their strategy and stocks to invest in can finally start investing and making fortune.

Bottom Line

As easy as investing in stocks appears, if the necessary processes are not correctly observed and followed, investors might end up losing their funds.

Moreso, it is important that potential investors who are not too familiar with how stock investments work, find a means to learn from veteran investors who have had good and successful investment experiences. This will as well serve as an aid to investing in stocks correctly.

As said earlier, intending investors who cannot make out time to do a rigorous research on the stocks they want to invest in or do not know make calculations for themselves should not opt for individual stocks.

Investors should not venture their funds into stocks or businesses that they do not know about.

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FAQ

Are stocks a good investment for beginners?

Yes, investing in stocks is not only limited to veteran investors, it also serves as a good investment for beginners if only they can understand the stock market and make the right investment processes.

What stocks to invest in?

It is advisable that intending investors invest in the stocks they understand best and practice a bit of diversification in this regard. Thus, if one stock doesn’t perform as expected, the other will.

How much money is enough to start investing?

Beginners can start investing with any amount. Hence, no amount is too small to start with as far as the money is investable. Investable funds are funds that would not be needed to meet any needs in a long period of time.

Thus, investors can start with any amount they are convinced they wouldn’t need in at least four years to come.

Do you have to live in the U.S. to open a stock brokerage account?

Opening a stock brokerage account can be done from any part of the world as far as the intending investor is able to access the internet. This is because opening a brokerage account is done online and does not require physical meetings.

Is it mandatory to pay taxes on the money earned from stocks?

Short-term and long-term capital gains are subjected to tax. So yes, it is mandatory to pay taxes on the profits gained from Investing in stocks.

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