Investing in the stock market is an excellent way to grow a person’s wealth. For people who venture into this field with long terms goals in mind agree that stocks are a good source of investment during periods of market instability.
Even when the market is down, it just means that are more options available for the investor to buy stocks at cheaper prices. For beginners, this area might be a little intimidating, but an understanding of the investment business will reveal that investing in stocks is not as complex or difficult.
There are a lot of tools available to aid the investor right from their initial stages, and the user can also decide to make his investing decisions himself. Investments in the stock market are a wise decision for people who have long term goals. Even if the markets are experiencing a slump, it does not last for an indefinite period and even then, they present the investor with opportunities.
This article presents the steps to follow while starting investing in the stock market. This article also highlights all the options available to the investor.
Procedure of Investing
Starting out the process of investing may seem like a daunting thing, but following these simple steps. There are two main ways to approach investing in the stock market.
A hands-on approach
A hands-on approach is when the investor decides that they would like to take all their investment decisions themselves. This mode is wise for people who do have some idea about how to move around the stock markets.
This is a do-it-yourself method, where the sole onus of all the operations is on the investor. The investors who take up this approach do not have any advice or information from any external source. They are the captains of their own ship and every decision regarding the investments is made by them.
A Robo Advisor
A robo advisor, like the name suggests, uses technology and algorithms to make investment decisions for the user. The artificial intelligence is equipped to understand the demands of the user and cater to their every investment related needs.
The robo advisor looks into all aspects, including tax-loss harvesting, rebalancing, etc. After the financial crisis that occurred in 2008, robo advisors were developed and they have become increasingly popular in the present times.
Robo advisors are very suitable for people who are looking to invest in the share market for long term returns. A robo advisor is able to analyze the market scenario constantly and present the users with informed investment advice. This is beneficial for people who are just starting out making investments.
Opening Trading Account
Opening a trading account is the first actual step in concretizing the investor’s journey into the share market. The users find two options available to them for opening a trading account to start their investment journey.
Online Brokerage Account
To invest in stocks, the first step is opening a trading account. An online brokerage account is for people who would like to manage their accounts themselves. It offers the investor the quickest and least expensive way to purchase stocks, funds, and a variety of other investments.
With a brokerage account, an investor can also open an Individual Retirement Account (IRA), or a taxable brokerage account if a person has adequate savings for their retirement. People should assess brokers on factors such as their costs, such as their trading commissions and account fees, investment selection, and investor research and tools.
An online brokerage account is for people who can devote a lot of their time into studying the market.
Robo Advisor Account
This is the passive option where the investor does not have a proactive role to play in the case of the investments. A robo-advisor offers the advantages of stock building and it doesn’t require the investor to do the actual work required to pick up individual investments.
The services of a robo-advisor provide complete investment management, where the advisor will ask the investor about their investment goals and then build the person a portfolio that would be best suited to fulfill those goals.
A robo advisor takes care of all the steps needed to ensure the desired results of the investor. However, the investor does not have an active role if they choose this type of account. People who opt for this method do not have to go through the rest of the article as their work related to investments end here.
Stocks VS Mutual Funds
For most people, investing in shares primarily means selecting choosing between stock investments and mutual fund investments.
An investor can purchase a single share or a few shares of a particular company to test the waters of the investment world. Having a portfolio with diverse stocks from multiple companies adds to the credit of the investor. Even though a diversified portfolio is very easily manageable, it takes a sufficient amount of investment.
This method of investment allows investors to purchase limited shares from different public limited companies. The advantage of owning individual stocks is that choosing the correct stocks can guarantee great returns for the investor. However, the chances of having a great turnover is somewhat slim.
Stock Mutual Funds
Stock mutual funds or exchange-traded funds let an investor purchase small pieces of much varied stocks in a single transaction. When an investor invests in a particular fund, they also own a piece of that company. A diversified portfolio can be achieved by purchasing multiple funds from different companies. Stock mutual funds are also often termed as equity funds.
The benefit of purchasing stock mutual funds is that the investor will have an inherently diversified portfolio, which naturally reduces the risks.
For investors who are mainly looking to make investments for retirement purposes, having a portfolio with a range of diverse mutual funds is the appropriate choice.
Budget Your Stock Investment
The amount of money that a new investor should invest in the stock market is a very common question. The answer is rather simple.
The amount of money needed to buy an individual stock depends on how expensive the price of the share is. If the investor desires a mutual fund dominated portfolio, investing in exchange-traded funds is the wiser options.
Risk factor is more with mutual funds as the amount which has to be invested is quite large. However, if the investor can turn profits on his investments, his income will be quite large in the long run. But it is wise to start off investing with a relatively small amount of money as the market is very unpredictable, and since the investments are for long term purposes, the investor will have the choice of investing further down the line.
If the investor is investing through funds, a fairly large portion can be allocated towards investing towards stock funds. For long term purposes, stock funds have the highest possibilities of reaping large profit margins.
Thus, setting a budget right from the initial stages of the process is a wise decision to take to reap long term benefits.
Have Long Term Goals
Investing in the stock market has to deal with a lot of intricate strategies and approaches, and some of the most successful investors have not had to venture too much from the basics.
One of the hardest things to do after investing in stocks is to ignore them. Leaving stocks for a long term ensures larger gains and an increased profit margin.
It is a good habit to ignore the stocks and not compulsively check how the stocks are doing. The stock market is built in such a way that despite its erratic nature, leaving stocks for a long time ensures large profit margins. So having long term goals for the investor’s portfolio right from the initiation of the process is a good way to move forward.
Manage Stock Portfolio
The investment markets fluctuate a lot and fretting over these fluctuating conditions do not help the investor. It is always better for the investor to check up on their portfolio from time to time.
Even if the robo-advisor is looking into all the investments, it is still better for the investor to keep a look out of what is going on in his portfolio.
At the end of the day, a computer program cannot completely understand the needs and demands of the person absolutely, therefore, it is always better to check. However, constant checking is counter-productive to the whole process.
The stock market is a very dynamic place where the values are fluctuating at every moment. However, it does not mean that if the market is in a slump, it will continue to be so.
Investing a person’s hard earned money in stocks and shares is a very suitable long term goal and one that most people resort to. Starting out in the investment sector may be an intimidating job, however the steps provided in this article will definitely be of use to the new investors.
Both individual stocks and mutual fund investments are a good place to invest and will reap benefits for the investor. However, this sphere is not all that suited for short term plans and goals, so it is necessary to have that in mind before investing in the stock market.
The steps provided in this article will definitely be useful for investors who are just beginning their investment portfolios.