What You Need to Know Before You Start Investing in Stocks
For those of you who have never invested in the stock market before, with the exception of maybe your 401(k) plan which most do not even understand, you may want to consider this article before you do.
Investing in the stock market is a sophisticated endeavor, especially for the non-professional traders. Fortunately, thanks to modern financial technologies, one can now learn how to start investing in stocks using the information and technologies that can be found online.
These technologies are simple tools designed to give you all the necessary information needed to succeed in stock market trading.
Here are 7 things that you need to know before you start investing in stocks:
1. You do not have any control over the company
Investing and succeeding in the stock market demands endless studying and research. It is not like putting your cash in a fixed deposit account in the bank. There are tons of decisions to be made in the stock market. For example, to begin with, you must decide on the stocks to invest.
You cannot pick just about any other stock, put your money on it, and expect returns. This would be a very risky and an unwise move.
You must therefore carefully and skillfully choose the company’s whose stock you will invest for a maximum return. This decision requires detailed research and analysis. It requires one to acquaint themselves with the company’s business model.
Secondly, you must know its market value and research its future plans such as expansion or diversification. Knowing the shares overall demand and determining the market share and competition is also recommended.
2. Everyone loses money from time to time
Investing your money in stocks involves taking risks. Keep in mind that even the best investors in the world lose their cash too.
The risk factor involved in the stock market investment will always be there and there is no way to completely avoid it. This could be anything from a prolonged bearish trend or the company’s share taking a nosedive for reasons unknown to you. The usual circumstances are quite common when it comes to investing in the stock market.
With this in mind, you should be prepared to face losses when you decide to invest your money in stock markets.
If you dread losing your hard-earned cash, then the stock market is not the place for you.
As hurting as it may sound, stay away from the stock market is your fear of losing money, especially if you have limited cash to invest. The risk of investing in the stock market can be hard to bear.
As a newbie, chances are that you do not have the know-how to succeed in the stock market. However, with just basic research, you can learn the basics and advance your knowledge as you progress in the market.
3. Investing your money in stocks is more like a gamble
No matter what anyone might tell you, investing in the stock market is complex gambling especially if you are thinking about day trading.
Most people may find this offensive and dismiss investing as gambling. The best investor in the world Warren Buffet doesn’t think that stock market investing is gambling. Investing entails identifying opportunities and committing your monetary resources and energy to grow the investment and make it successful. However, at the end of the day, you be making a wager that your plan will work.
If you invest in shares of a company that you believe will be successful in the future, you must undertake rigorous research to back your belief. You must thoroughly research the industry and look at the company’s financial muscle. Check the executives and look at their competitors.
4. The information you need is not hard to get
Make use of Yahoo, Finance, Google, Bloomberg, and any other essential website to get information on the best stocks to invest. These free to use website can help you find right about any information on all stocks and respective companies.
You can check their valuations, financials, and check out what top analysts think about the stocks. Fortunately, this is all free and easily accessible even to a novice.
Unlike other seasoned investors, you have to do extensive research, burn the midnight oil gazing at your PC trying to identify the best stock to buy.
Remember that the information you get is not a secret that only you now know. Instead, everyone else interested in the same stocks sees it.
It is also worth noting that some of the best stock investments have some level of secrecy.
This means that the general public may not know or can only access limited information about the shares. If you are privy to such information, then you are setting yourself up for remarkable success in the stock market. Unfortunately, it is almost impossible to have an advantage in the stock market.
5. The stock market feels like a jungle
No matter how much you know about investing in the stock market, at some point, you end up feeling as if you are lost in a jungle. Never overestimate your ability to lose perspective. The tons of information you must wade through on a daily basis can be intoxicating.
The rapid pace and all the contradicting information, coupled with the urge to make lots of money in the stock market can be intoxicating and addictive.
Everyone investing in the stock market for the first time experiences this and at some point, you end up feeling like you are sitting in a casino with the smell of money in the air.
6. You can simply trade stocks with technology
Over the years, graphics and complicated trading platforms have been invented to help professional traders and broker with special training. Usability and design of these trading platforms are key to determining the success of a trader. More advanced trading platforms have made investing in the stock market much easier.
7. You can start investing in stocks with as little as $5
Even without a huge sum of cash to invest in the stock market, you can still earn good returns. How to start investing in stocks with as little as $5? To do this, you need to use leverage and microfinance services to grow a profitable portfolio.
Leverage is always available in your margin account although I do not recommend this option until you feel you are ready for it. There are a number of online stock brokers and platforms available for investors at different levels. Do your research.
Why invest in the stock market?
Who would not want to invest in the stock market nowadays? The market is having one of the longest bull market run in the stock market history.
Depending on your financial situation, there are numerous reasons why you should consider investing your money in stocks. Over the last decade, potential investors have been cautious and concerned with the volatility or identifying the right time to enter the market.
Set investment goals. Investing in the stock market is a long game, not a short game. It is meant to create growth over the long term, usually 3 years or more. Stocks by their very nature are volatile and are not good for short-term money. Long-term is less stressful and a safer strategy.
Instead of attempting to time the markets, which is outright a bad strategy, novice investors should consider the potential gains and losses before investing in the stock markets. Keep in mind that stocks are but one of the numerous investment options to consider.
Why should you choose stocks over other options such as rare coins, bonds, or even antique cars? The reason why all top-notch investors go for stocks is that they offer the highest potential gains.
On the flip side, the stock market offers a highly volatile investment. As you probably know, the value of stocks can take a nosedive in a very short time. In other cases, the drop may be over a protracted period. Poor timing or mere bad luck can easily drain your returns. However, you can easily minimize the risk by going for the long-term investment approach.
Stock market investments offer no guarantee that you will indeed get any positive returns. If you pick a stock whose value is on a steady decline, you will surely lose money.
By educating yourself on how to invest in the stock market, you can easily minimize the risk and improve on the reward. A seasoned investor can also help you identify potential stocks and help you avoid risky investments. Keep in mind that even the most seasoned investors lose money in the stock market every now and then.