Looking from the outside in investing in the stock market can be deemed as confusing. If you are ready to start your investing journey and want to understand more about it there are many steps and tricks that you can use to help you. Having a defined approach can enhance the returns on your investments and potentially set you up for life. Below is our step-by-step guide to investing in the stock market successfully.
Your Investing Approach
As with most things the first step in investment is the most important one. Once you have decided upon the right investing approach for you, this will define your investment approach. Sometimes investors will want to have a more hands on approach, choosing to purchase individual stocks and monitor them. Others will want a more laid-back way of investing; it is completely dependant on the type of person you are.
Individual stocks are for the more analytical approach, you will need to do a lot of research and be well informed on mathematical calculations. This requires a lot of time and effort and should only be adopted by those that are willing and ready for such a challenge.
Index funds are a more passive way to invest, they track stock index funds and allow you to have lesser outgoings initially. These are considered to be a long-term investment opportunity and can build wealth up over time.
Robo-advisors are an increasingly popular option in more recent times. They are a brokerage that will invest your money for you. They take into consideration your risk tolerance, goals and investment interests, but have a varied knowledge of good and risk-free investments to help boost your returns.
How much do I invest?
This is an age-old question, it’s like getting a tip on a horse, and how much do you put on this risk? How much can you afford to lose? The stock market is not a place to invest money that you may need within the next five or so years, please be aware of this before investing anything. The stock market will definitely rise over time, but there is a lot of uncertainty when you invest, like anything. You should avoid using any emergency funds you have, savings you have put aside for anything such as a mortgage or tuition fees as a standard.
Your asset allocation is the term coined for your investable money; the amount you should be investing is very dependant on your age and income. If you are older, chances are you may be not as interested in the stocks as they need a considerable amount of time to increase in value. The overall maths behind this is that you take your age and minus it from 110, this is the percentage of investable money that you should be investing in stocks.
Open an investment account
Investment accounts are easy to set up but there are a few you can choose from, there are also many companies that can help you open a brokerage account too. Please ensure you have done your research into finding the right one for you before ploughing in headfirst. You must compare the initial and on-going costs and the features of the account as a priority, this will help you choose the right way to invest.
For newcomers the accounts you will be deciding from are typically a standard brokerage account or an individual retirement account. Both of these accounts will allow you to purchase stocks, mutual funds and ETFs with ease. If yu want easy access to your money the standard brokerage account is more suited for you. If this is a long-term investment, the individual retirement account is the right account for you.
Diversify
The best way to reduce risks when investing is to diversify your stocks, this way you will be able to reap the rewards of multiple investments at one time. When you choose the stocks, you want to invest in you must have an understanding of the business, avoid more high-volatile stocks (at least until you understand investments more) and learn the basic metrics and concepts to help you evaluate stocks. These three pointers are key for success with any investment choice.
The more you understand, the better you will be and the better rewards you can gain. The same can be said for diversification, the more investments you make, the more chance of you gaining an increase in capital. It would be prudent to do a lot of research in this field before investing to ensure that you understand the risk over reward and the likelihood of you getting your profits up.
Repeat these steps
This step is by far the most obvious, but is still very important. The biggest impact you can have on your investments is if you continue to use your profits to re-invest and grow your portfolio. This will have a massive impact to your earnings as a whole and the potential for your portfolio to grow and become more lucrative.
All of the investment greats agree, once you have profited you could take you initial input out, but continue to invest with these profits. This minimizes the overall risk, allowing you to grow and grow. Naturally, you will experience market volatility, but this should not be the reason for you to not stake your profits and re-invest, the likelihood that the market will fluctuate is a certainty, but it will usually balance out again.
Conclusion
Investing in the stock market can be as easy or simple as you allow it. Please remember to invest within your limits, educate yourself before investing and follow these simple steps to ensure you are conducting yourself correctly. Education is key, take the time to understand the type of investor you want to be and how to get to that stage before taking the plunge. The more time you spend understanding the markets and your options the more lucrative your investments will be.
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