Investing in Stocks for Beginners: The Ultimate Guide to Investing With No Finance Background

                                            Image Credit: Pecondo CA on Unsplash

Stocks and investment can seem intimidating to the uninitiated. Even for those with a general understanding of the markets, the terminology, and the concepts behind them, the process of putting together a well-diversified portfolio can seem like a minefield.

If you’re reading this, then you’re probably looking to get started with investing, but you might need a little help navigating the choppy waters of the Stock Market. Luckily, you’re in the right place. Investing can be a complicated topic, but not in the way you might think.

If you’re looking to get started with investing but don’t know where to begin, then you can continue perusing below contents. In this article, we’ll take you through everything you need to know about investing before you get started.

What does Investing in Stocks Mean?

Stocks are an investment; they are not a bank account. You are not lending money to anyone or receiving a return on your investment. There is a certain level of risk involved in all investments, but there is also a certain level of return that comes with that risk.

Stocks are a contract between an investor and the organization that is offered it in the form of a share of ownership. The ownership of a company is transferred via stock certificates or via a stock exchange.

You are purchasing a share of a firm whenever you invest in it. In exchange, the company promises to give you profits, which is known as dividends. The portion of the profits that you get as a dividend is known as a dividend yield.

What you need to do to start Investing in Stocks

Stocks can be bought in a number of different ways. Asset classes, funds that invest in a variety of equities, mutual funds that pool money from many people to buy a big number of stocks, and exchange traded funds are all options. You can purchase individual stocks via a brokerage account or via a mutual fund. The brokerage account method is the most common way to purchase stocks.

You can go with a low-cost brokerage for a tax-advantaged portfolio or use a robo-advisor (online investment advisor) like Personal Capital or Trove. You can take advantage of a number of free resources to build a diversified, low-cost portfolio. Having a diversified portfolio is imperative and judicious implementation of the steps enumerated below will be handy.

1a. Make a decision about how you'd like to invest in the stock market. Many options exit on how you can start investment in stocks. You may adopt the ‘do it yourself approach’ whereby you opt to handpick stocks by yourself. Doing this will entail that you gather technical, fundamental and financial statements analysis techniques so as to ensure you don’t make investment decision based on sentiment.

 1b. Based on your outlined investment objective, you may engage the services of experts or brokerage firms to carry out the investment for you. Robo advisors may be deployed to ensure optimal maximization of your investment.

 1c. Investment may be initiated through your employer if you are employed. There may not be access to individual stocks for you but small contributions for accessibility to stock mutual fund is tenable in making room for regular investments with the long-term position in mind.

 2. Select and open an investment account. This is necessarily important as you will need a platform for buying and selling of stocks of interest to you. The account opening can be done by a Robo Advisor or a Brokerage Account. The decision to opt for any of this account opening type has to hinge on cost of brokerage commission, benefits in terms of assistance with information and knowledge sharing and proven track record. If you do not want to lean on doing most of the investment activities personally, then you might consider Robo advisor.

 3. You need to know the difference between investments in funds and stocks. Stocks entails investment in company stocks individually while funds involved pooling of funds together: this makes room for smaller investment amounts through mutual funds or exchange traded funds.

 4. Determine your budget for the investment project. Setting your budget for this project will depend on your chosen investment type, your income level and your attitude towards risk. A safer advice for beginner with meagre income is that they look towards funds investment. That said, diversification is also key, hence there should be a mix with the larger chunk of your money going into funds while the rest is channelled into stock. That is, an 80/20 rule.

 5. Maintain control of your stock portfolio. Managing and maintaining control of your portfolio is not all about checking your investment every minute and engrossing yourself with fear. Yes, you need to periodically check in to see what’s going on but the real deal is to look at your circumstances and then position your investment in a way that it is safe with and on low risk. That is why diversification of your portfolio across industries is imperative. You also need to keep yourself abreast of vital information so that you can take proactive action.

6. Take a long-term position. Embrace the focus of investing for a long term. Overtime, Stock investment have shown to be viable with this ideology. Despite whatever happens, the long-term average may be favourable for you.

The Different Types of Stocks

There are a number of different types of stocks that you can invest in. They range from stocks that are very safe and conservative to stocks that are very risky and volatile.

You’re going to have to decide which type of stocks you want to invest in. If you’re just getting started, you’re probably going to want to stick to the safer end of the spectrum.

The following are some of the most common types of stocks:

Utility Stocks: A utility stock is a somewhat safe bet because it is supposed to provide consistent and predictable dividends. They are usually less volatile than other stocks but provide lower returns.

Tech Companies: There are risks inherent in different sectors but most tech companies have shown tremendous potentials for growth. Amazon, Microsoft, Netflix, Apple Cisco Systems all show growth potentials.

Biotech and Medical Stocks: Biotech and medical stocks are risky because they often deal with new and experimental drugs. These stocks have a very high risk of failure and are not for the faint of heart.

Energy Stock: Energy stocks are however tricky because they are frequently composed of a single commodity, such as oil, gas, or coal. They are frequently vulnerable to price fluctuations.

Gold and Silver Stocks: Gold and silver stocks are also known as commodity stocks. They are often very volatile, but they also offer the potential for higher profit margins in a rising market.

How to Buy Stocks

There are a few ways to buy stocks. You can purchase shares on a exchange, you can purchase shares on an over-the-counter (OTC) market, or you can purchase shares with a broker.

Purchase Shares on an Exchange: The most common way to purchase stocks is on an exchange. You can find a list of all the major exchanges at InvestingStocks.com. One thing you need to keep in mind is that most brokerage firms will not allow you to trade stocks unless you have a minimum amount of money in your account. Make sure you have at least that much in your account before you purchase your first stock.

 The 3 Most Important Lessons About Investing in Stocks You Need to Know

There are a lot of misconceptions about investment in stocks out there. Here are the 3 most important lessons you need to know about stocks:

• There really is no such thing as a perfect statistic. Different players in the stock business both the highly experienced and beginners have various ways of analysing stocks and drawing conclusions. There is no quintessential number that delineates bad and good stocks. There are always fluctuations and volatility in prices is real.

•  Nothing is completely sure and rubberstamped. Most predictions and analysis do not completely turn out as predicted, even the ones done by highly placed professionals. Yields, dividends and prices of stocks may swing either way. Strategies employed to mitigate on this is the best way to go especially when long term position is factored into consideration.

•  It is a truism that buying low and selling high is a sure way to making profit. This translates to the volatile nature of the stock market. The bullish nature at some period in time does not permanently persist. Knowing when to go in and take position is vital if the objects of investing activities are to be met.

Conclusion

Stocks are an excellent way to build wealth. The more stocks you own, the better your investment portfolio will be. Owning a small amount of a few different types of stocks is better than owning a large amount of one type of stock.

There are a lot of myths and misconceptions out there about investing in stocks, so make sure you’re staying informed so you can make the most of your money.