Many investors are interested in stocks as an investment but are reluctant to get started. For beginners without much knowledge of the stock market, buying shares is associated with one factor in particular – risk. Stock trading is perceived by many primarily as a speculation on the stock market and less as a safe investment. However, there are many reasons why buying stocks makes sense even for beginners, and why you should not miss out on them as an investment.
What is Stock Investing?
A stock is a form of security issued by a stock corporation and traded on the stock exchange. Individuals and companies can purchase the stocks and become a shareholder. Later, these shares can be sold for profit or held continuously to get part of companies profits in a form of dividends.
With the help of shares, companies strengthen their equity, this money helps them make important investments or develop new products.
Stocks can be listed on various domestic, international, or online trading platforms, for example, Brokstock.co.za or eToro. Famous international platforms include London Stock Exchange and Wall Street.
Benefits of Investing in Stocks
For most investors and traders, the advantages of trading in stock outweigh the disadvantages, so that the securities are interesting in principle:
- Good return opportunities. Most investors see the biggest advantage in stock trading in the fact that the securities offer very good returns on average. Measured in terms of risk, this is one of the highest-yielding forms of investment.
- Wide choice. Many thousands of equity securities are traded on stock exchanges around the world, and you can choose between them.
- Inflation protection. When you buy stocks, you invest your money in the company and thus become a co-owner, including through the aforementioned assets. Since the price increases and price fluctuations of stocks are independent of the development of interest rates, it is easy to see why this is a popular inflation protection.
- Co-ownership of the company. You can exercise this right at the annual general meeting. Various votes are taken there, for example on the distribution of a dividend based on the current fiscal year.
- High liquidity. You have the option of selling the securities at any time on a stock exchange or even in over-the-counter trading.
With advantages such as these, it is easy to see why so many people a drawn to stock investments.
Steps to Getting Started
So, you have finally decided to invest in stocks but where do you start? Here are a few steps you should take before start building your portfolio.
Learn the Basics of Investing
If you never invested in stocks before, your initial step should be to acquire as much knowledge of the market as possible.
First of all, learn about different types of stocks. In addition, stocks are tied to various rights and obligations. As the owner of an ordinary share, for example, you have voting rights at the Annual General Meeting or entitlement to dividend payments. With preferred shares, on the other hand, you have no voting rights, but higher dividend payments.
Understand Your Financial Goals
Your next step is to figure out what goal you want to achieve with investing. Is it your retirement plan? Do you want to buy a new house in 10 years? Or is it a way to get a steady monthly income? Whatever your goal, it might be difficult to actually start investing effectively without figuring it out first.
Stock ETFs and stock funds are suitable means of investing for the long term, especially for newcomers. Their decisive advantage is that when you buy ETF or fund shares, you invest in several stocks at once. In this way, you automatically spread risks across companies, sectors, and countries.
Define Your Investment Strategy
The investment strategy describes an investor’s approach to investing. The aim of the strategy is to build up wealth with the profits from the investment. There is no “universal strategy” that leads all investors to success. Which approach is the right one depends heavily on personal risk tolerance and the individual goals of the investment. It is therefore worthwhile first to have a general overview of the investment strategies that actually exist.
Research and Choose Your Investments
For beginners and novices, it is advisable to pick investments with lower risks. For example, a combination of overnight money, deposits, and low-cost ETFs could be an excellent starting point for your portfolio.
Choosing a Broker and Set up an Account
If you want to trade on the stock exchange as a private investor, the first thing you need is a securities account. Opening one is easier than ever these days, and there are numerous providers for every budget, online and offline.
Managing Your Portfolio
When the first stocks are bought and your portfolio starts to slowly grow, it is essential to manage it constantly. There are a few things that this process involves.
Monitor Your Portfolio
Once you have put your portfolio in order, regular monitoring is not difficult. Nowadays, it is no longer necessary to create complex Excel spreadsheets, print them out and pin them to the wall.
Almost all banks and brokers offer you the ability to regularly look into your securities account online. You can see at a glance how the values of the individual positions are developing, i.e. whether the performance is suitable.
Rebalance Your Portfolio
Balancing your portfolio means constructing a portfolio that fits your individual risk tolerance and investment goals. But it’s not enough to “just do it once and forget it.” You also need to make sure your portfolio stays balanced, which is known as rebalancing.
There are a few reasons a rebalancing should be done:
- It ensures that you have a mix of investment assets – usually stocks and bonds – that fits your risk tolerance and investment goals.
- It allows you to maintain your desired level of risk over time.
- Portfolios naturally get out of balance when the prices of individual investments fluctuate over time.
The purpose of balancing a portfolio is to achieve your desired balance of risk and reward potential in your portfolio.
Make Adjustments
Certain events in your life or the market might force you to adjust your investment strategy. There is nothing wrong with that. Make your adjustments and continue to use the monitoring method that works best for you.
Conclusion
Since an investment usually has a long-term horizon, it is not worth chasing any trends or suddenly concentrating on a specific investment in a crisis. Therefore, once you start investing, try to stick to a plan and do not make any rush decisions. By using every tip described in this article, you will significantly improve your chances of becoming a successful investor.
