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A Comprehensive beginner’s guide to investing in the stocks A Comprehensive beginner’s guide to investing in the stocks

Everyone wants a fast and easy way to make money.
The time and compounding interest are two things you need to focus on to build wealth.
For the newbies, the stock market may seem daunting.
But investing in the stock market can offer some profitable return that can’t be done through cash savings.
We have designed a simple guide to help you get started with the investment decisions.

Let’s start with understanding stock.

Do you wonder what stock is and why people buy shares in stock?

It’s a place for the trading of shares or stocks.
You will find many stock markets in the world.
Companies group their shares for market index.
The average is calculated by the combined value of the companies.
Usually, the companies with the same size and value form a tie-up.
Cases where companies of different sizes combine, the bigger company has the most effect on the index value.
Based on the size and niche of the company, market index value gives an estimate of the movement in the market. This tool is used by economists and investors to predict the market and compare the values of shares.

How does investing in shares work? What are stock mutual funds and individual stocks?

Stock market investment carries risk.
It’s crucial to approach it in a well-planned manner.
The shareholders hold some amount of shares from a company.
They can get benefit in two ways: dividends and capital gains.
A dividend is a profit distributed by a company to the shareholders while the capital gain is the amount a shareholder get when they sell a stock at a higher rate than what they initially purchased if for.

Stock mutual funds:
stock-mutual-fund
Also known as exchange-traded funds let you purchase some part of different stocks in a transaction.
This allows you to put multiple funds together for a diversified portfolio.

Individual Stocks:
individual-stock
You can buy a share from a specific company.
The stock market can lessen your risk while individual stocks can pay you handsomely as well as put you on risk.
You can build a diversified portfolio but it needs significant investment.

How do you make money in the stock market?

  • With the increase in the value of shares, you can sell your shares for a profit.
    You can keep hold of shares to sell them when the value rises.
  • You can get a dividend payment by investing in a company that pays a dividend.
    With the increased profit, the dividend amount will also increase.
    Such investment can result in loss and profit.
    The previous performance of a company can’t guarantee future returns.
    A long term investment in share gives better returns than instant saving account.
    However, the saving accounts are risk-free than the shares.

How do share prices move?

Some of the factors that affect share are:
• Global or national economy
• How a company is performing
• Specific company based factors- strategy changes and management decisions.
Please note: share market is just not limited to these factors.
You need to stay updated with the news of the company in which you invest.

How can you buy shares?

Usually, shares are traded frequently. But an investor can buy them is when they are created and issued to people.

How to start investing in stocks?

  • Initial Public Offerings:
    Initial-Public-Offering
    The ownership of a company is divided into shares when the shares are created for the first time.
    These shares are available for the public.
    This is also termed as ‘listing’ or ‘floating’.
    After this process, the shares can be sold and bought by anyone.
    This is usually done to get more money to make a future investment.

The Secondary Market: This stage is followed by the IPO stage.
The shares can be bought and sold through the stock exchange.
You need a stockbroker when buying a share in the secondary market.
These stockbrokers provide services under three levels:
Execution
Advisory
Discretionary management

How to make a share investment?

You don’t need a large amount to make investments. You can start investing with a smaller sum as well as a lump sum based on your savings.

  • Regular Savings: You can start by as little as £30 every month.
    This way you can afford to invest with minimum risk.
    This allows you to manage market fluctuations with regular small investments.
    The monthly investment can help you average-out the amount.
    You can purchase more shares if you see profit in the market.
  • Lump Sum Amount: People have a lump sum amount at some point in their lives.
    Your lump sum amount doesn’t have to be a big amount.
    You can start investing with just £200.

How to set a budget for the investment?

  • How much money should I invest in stocks?
    The money investment is based on the cost of the shares.
    The prices in the stock market can start from a few dollars.
    If you want to invest a small amount then go for exchange-traded fund (ETF). In case you are planning to invest through funds, take out a large portion for stock funds.
    This is highly recommended if you have a long term goal.
  • When to sell the stocks?
    Inventors put more focus on buying stock and ignore the time when to sell.
    This is one of the biggest mistakes.
    You need to have a set of rules to avoid giving your hard-earned money away.
    The two foremost rules are:
    Lock your profit and cut on losses.
    •Don’t sell stock by timing the market
    Sell the stock if purchasing was a mistake (limit your loss to 8%)
    When stocks rise dramatically in a short period
    Sell for financial needs.
    This may not be considered one of the smart decisions from an analytical point of view but it is a valid reason.
    Hope these tips will help our new investor in planning out their investing strategy.
    For more help, you can get in touch with us.

 

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