This post is about how to invest money in stocks for beginners. When you buy a stock, you buy a part of that company. That stock purchase receipt represents a share of ownership, giving you a claim to that company’s assets and earnings. The more information you have about investment opportunities the faster it is for you to use it to earn more money. In the past, only a few had access to money-making information. Today, that is no longer true due to technology. You now have access to information right on your fingertips via your Smartphone devices. So, if you want information and tips on how to invest money in stocks for beginners, you have it free without any stock lingo barrier.
Tips on How To Invest Money In Stocks For Beginners
Assess your financial situation
First, you need to lay a solid foundation for investment in stocks. Do a self-appraisal of your finances and set aside living expenses of savings of up to 6 months. But if you have a family, then you need have more in your savings account. Second, pay off all your credit card debts and then evaluate how much you have for investment in stocks. So after the appraisal and you still have some good money to start investing in stock, then move on to the next stage.
Think in terms of risk and returns
This simply means that for you to get higher returns you must buy stocks that are riskier. But if you don’t want risky stocks then you will make do with those with lower risks that give you lower returns. All investors fall in either being too risk-averse or being too ready to take a risk. So to keep your money safe you have to do the next step.
If you are a smart investor then you must not buy one type of stock. The reason is that companies differ in size, sector, volatility, and types of growth patterns (ex. growth and value). So diversify your portfolio by buying stock with different volatility. You can hedge your risks by buying different stocks and mutual funds. Cast your mind back to the stock market bubble in the 1990s, if you had invested in only Technology stocks, you would have lost all your investments in those stocks.
Don’t get emotional
Another tip on how to invest money in stocks for beginners that you should note is not to get emotional. Investing is for the long term to increase your retirement funds. You don’t invest to make fast money to buy something big in a short time. So if you trade often due to market fluctuations it is difficult for you to win.
Also, market behavior over a short term period is based on people’s enthusiasm of loving a stock or fearing something bad will happen to it. So, Invest for the long term based on a company’s results and earnings. It is consistent earnings that determine the value of a stock.
Assess stocks volatility
To judge a company’s volatility, examine its 12 months standard deviation for up to 10 years. This simply means that you should consider the stock’s performance in 10 years. A normal standard deviation is about 17%.
This means that it is normal for that particular stock’s price to either go up or down by a value of 17%. Have this in mind before jumping out too soon from a stock that is suffering a temporary slide in price.
Buy low sell high
The next tip on how to invest money in stocks for beginners is to buy low and sell high. The idea is to look out for the stocks you want and buy them when their prices are low and then sell when their prices are high.
This advice can be hard to follow especially when you are winning. It is like walking away from a blackjack table in a Las Vegas casino when you are literally hot and on a winning streak. But to protect your investment portfolio, from excessive risk, sell some stock that has appreciated in value and then buy more of those stocks that are under performing.
This may seem like the wrong thing to do but it is not. What you are doing is re balancing your portfolio. For example, if the stock you bought has a standard deviation of 15 percent, and it drops lower than 15 percent in quick succession then you should buy more of that stock and re balance your portfolio. The likelihood is that the stock will rebound and later go right up.
Understand how market expectations works
You should note that stock price is usually based on the investors’ expectations of how the stock will perform not on actual performance. The stocks markets expectations for any company are reflected in the stock price. So it is not just enough if you invest in a company that is expected to have above-average growth.
But you must try hard to find a company that will grow more than the market expects that it would. To know that, you must do a comprehensive analysis of a company’s future rate of growth more than industry experts. This is not only difficult but doubtful.
Invest in well manage companies
Investing in well-managed companies is another tip on how to invest money in stocks for beginners. You should look out for well managed companies because if their performance in the past has been good, there is every chance that they may do well in the future. Doing well depends on their managers and resources available to them.
Look out also for a company that is able to venture into a new line of business and thrive in it. If they consistently post good results even when they are on new line of business, then their future prospects may be bright. But note that there is no guarantee that this will happen. So do not put all your investment money in one stock and lose it all.
Learn the stock market Language
To succeed as a stock investor you must train yourself. So, you have to know the difference between an ETF and a Mutual fund, the purpose of an index and so on. Also you must realize the true meaning of risk. Visit these resources to learn about investing in stocks. They include The Wall Street Journal, Kiplinger, Investopedia and the Morningstar.
Also you should visit mutual funds companies websites and read books like The Investor’s Manifesto by William Bernstein or The Elements of Investing by Burton Malkiel and Charles Ellis.
Get more advice
The last tip on how to invest money in stocks for beginners is that you should get more advice. You may study all those books and learn a lot on your own but you still need an experienced person to guide you. You can contact Investment firms like Charles Schwab, Northwestern Mutual, and Garrett Planning Network. These firms have financial planners who are ready to work with investors of all income levels and investment experience.
Also, talk to your friends about how they get financial mentors. But if you are a DIY person, visit this community of investors and share knowledge with them.
In this article, you got 10 tips on how to invest money in stocks for beginners. They will serve you well as you start your investment journey in the stock market. Follow them to grow your portfolio and safeguard your investments.