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Stock Investing Basics for Beginners Explained

Stock investing is one of the most time-tested and profitable ways to grow wealth. If one invested $10,000 in the S&P index about 40-50 years ago, he or she could gain approximately $1,2 million at present. You may think you are ready to invest in the stock market. However, there are some essentials and stock investing basics that you need to learn first. Otherwise, even the most trusted way can lead to failure.

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Today, we will share some crucial things you might need to know before investing capital in the stock market. We will discuss what types of stocks are better for investing, how to arrange your capital and manage funds, etc. So, let’s get started.

1. Determine the Approach to Stock Investing

Every book or manual that describes stock investing for beginners starts with determining the approach. It is actually the first thing to consider. To resolve this issue, one has to define his or her trading personality. Decide on which of the following describes you the most:

  1. I love crunching numbers. I am a dedicated analyst. I enjoy doing research.
  2. I hate doing maths and I do not feel like learning much about how to start stock investing.
  3. I have only a couple of hours per day to spend on stock investing.
  4. I like to do research and find information about different companies to see how they perform.
  5. I just want to make money without diving deep into details.
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None of the following mean you will or will not succeed. Anyone can enter the stock market and gain success or lose. It will depend on the approach, the plan you develop, and the type of stocks you choose to invest in. Besides, platforms like copy trading make it possible to involve in stock investing with actually no experience. You only have to mimic the trades of dedicated professionals and share profit.

Ways to Apply Stock Investing Approaches

There are several ways to apply a chosen approach depending on your trader’s personality (after you decide, which of the above-mentioned refer to you the most). So, you can choose from the following investment modalities:

  • Individual Stocks. This methodology will suit ONLY those who have enough time to do the research. Here you will also need a set of tools to perform fundamental analysis. Investing in individual stocks requires a smart approach, patience, and discipline. It does not actually mean you will be snowed under with calculations and analysis. However, you still need to be ready to handle quarterly earnings reports and some simple calculations to see how the company or market is going on.
  • Index Funds. Another way is to invest in indices like S&P 500. The index includes a list of the most successful and well-performing companies that trade shares publicly. The approach introduces a passive way to manage funds and grow wealth. All you need is to choose a stock issuer from the list, purchase assets, and wait until they will bring profit. Generally, total returns here are about 10% annually.
  • Trading Robots. Also known as robot-advisors, trading robots introduce niche-specific software that helps to perform stock investing on autopilot. An automated brokerage does all the job for you though you can still optimise a trading strategy and make necessary changes whenever needed.

As you can see, there are several ways of stock investing for beginners. Everyone can find the best-matching approach despite their background or financial knowledge.

2. Decide on the Capital

After we have identified the approach, it is necessary to decide on how much to invest. Some experts say that the stock market is not the best place to invest funds that you may want to use within the next 4 or 5 years.

Financial markets always come with uncertainty. Besides, the situation changes drastically making it hard to predict how things will go on in the near future. For example, the market plunged by 40% during the pandemic. This fact delivers certain risks of losing cash. So, make sure you have enough money to maintain your daily routine.

Whatever you do, never invest the following:

  • Emergency cash for unexpected situations.
  • Money you may need to cover upcoming bills.
  • Vacation, repair, medical funds, etc.

3. Open Account and Start Investing

Now, you are ready to choose a broker and open an account for stock investing. For a start, you’d better invest in surefire assets and shares issued by some of the most reliable and trusted companies. However, it does not mean you need to spend all your capital on blue-chip stocks, as several shares can cost you a fortune.

The best way is to look for assets available at a reasonable price. Then, you need to hold shares for as long as the company’s business does great. So, the process still requires a bit of monitoring in order to avoid volatility in the long run.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.