How to Invest In Stocks: A Beginner’s Guide
So, you want to invest in stocks?
Here is a step-by-step guide on how to buy stocks of your choice.
What is your investing approach?
Before you can choose stocks to invest in or open an account, you need to consider the approach you’ll take. As humans, we are gifted differently and demands for our every day life differ. As such, you should take an approach that best suits you.
Are you good in math? Do you have time to spare to trade? Is your work life busy? Answering these and more questions will allow you to make an informed decision. So, which approaches can you take?
1. Individual stocks
This is especially ideal for people who want a hands-on approach to trading. Could be you have ample time to evaluate stocks or are interested in doing it on your own.
Individual stocks are also suited for people with patience and are willing to learn the ropes in the long run. You should also know which stocks, when to buy, and how to choose the best account.
Robo-advisors have grown in popularity in recent years. The brokerage invests your money on your behalf in a portfolio(s) that suit your goals, age, and risk tolerance. Robo-advisors also make changes where necessary to ensure maximum returns.
In fact, most reputable advisors and brokerage firms offer these services. They are intended to lower your cost of investment while offering much-needed and timely investment advice. Statistics show that by 2025, at least 58% of Americans will use a roboadvisor.
So, if you want a robot to do all the work for you, a robo-advisor is the best bet. Besides, they are ideal if you want to create wealth in the long term.
3. Online brokers
This is the most popular approach beginners use. This is thanks to the experience and longevity online brokers possess. You can choose between a discount and a full-service broker.
Discount brokers allow you to place your trades by giving you the necessary tools. They can also give you roboadvisor services on request.
On the other hand, full-service brokers offer full range services. Here, you can get education, healthcare, automotive, and other investment options. As expected, they charge a premium fee to manage your investment.
4. Investing through your salary
This approach is ideal for people starting out or those on a tight budget. You can invest at least 2% of your salary into you 401(k). Besides, this approach is automated, in that, 2% of your salary will be deducted before taxes. As you learn the ropes of investing, you can gradually increase the allocation.
5. Index funds
How much will you invest?
When it comes to investing your money, keep in mind that not all money should be used for investment. For example, you should not use your emergency funds, money intended for education, funds for vacation, and more. This is because the market is volatile and can drop to as low as 40%.
When it comes to asset allocation, you should consider your age, risk tolerance, and investment goals. If you are young, investing is stocks is a good idea as you have many years before you. Conversely, the older you are the less likely you are to invest in stocks.
Which investing account will you open?
To buy stocks, you’ll need to open an investment account with a brokerage. The account allows you to buy and sell stocks as well as keep them securely. The best part, opening an account is straightforward and does not require heft fees.
Types of accounts
Online brokerage accounts are ideal for beginners since they are relatively cheap and do not come with stringent instructions. Here, you can open an IRA account if you want to invest in your retirement. There are Roth and traditional IRAs accounts to choose from. Most brokerage firms offer special accounts for business owners and other independent individuals.
Another option is the robo-advisor account. With this account, you are free from the legwork of making investment decisions. Companies that offer these accounts will need your investment goals to create an ideal portfolio for you. The best part, it is not as expensive as the IRA accounts.
Before you can open an account, keep in mind that brokerages have a minimum deposit requirement. If you don’t meet the threshold, your account application won’t be successful. Luckily, most premium online brokers do not charge commissions for transactions. However, full-service brokers will charge a commission for each trade executed.
Another aspect to consider are the features the broker affords you. For example, some brokerage firms offer webinars, educational materials, trading insights, and more. You can also find those that have physical branches where you can receive guidance on a face-to-face basis. Others will give you options on trading foreign stocks which is especially ideal for intermediate and seasoned traders.
Choose which stocks to buy
After choosing your trading approach and opening an account with a broker, it’s time to choose which stock to buy. This can be especially daunting for a beginner given the sheer number of stocks to choose from. It is recommended that you buy stocks from blue chip companies that are sure to withstand economic hardships.
Some popular blue-chip companies to consider include Coca-Cola, Microsoft, Facebook, and others. Their stocks are stable and yield high dividends. That said, you should invest in a company in an industry you understand.
Some of the stocks to consider include:
1. Adobe Inc. (ADBE)
This software provider has been in the market for decades. Thanks to its longevity, its stock prices have been rising gradually. The company has a valuation of $300 billion as of writing. This is thanks to the increased sales experienced in second quarter of 2021.
In fact, its non-GAAP earnings and revenue increased by 23% surpassing analysts’ estimates. Since its software offering encompasses a large user base, it produced a revenue of $3.8 billion. And as subscription services skyrocket, it is expected the company will grow tenfold.
2. Spotify Technology SA (SPOT)
While the company continues to make inroads in the streaming industry, it has not had a healthy running in the previous year. However, it is still healthy registering new sign up but still, not meeting analyst estimates.
The company garnered 365 million users in the Q2 of 2021. However, as it introduces new features such as nascent Discovery Mode, it is poised to register a gradual growth.
3. The Walt Disney Co. (DIS)
While its performance in 2021 has not been impressive, the company’s stocks are still one of the most stable. The rather lackluster performance is due to the happenings in 2020 which saw most of its parks closed.
Luckily, most of its iconic parks are gradually opening registering thousands of visitors. And its Disney+ streaming service is attracting numerous signups. In fact, in the second quarter, the company registered more than 103.6 million subscribers.
4. Facebook Inc. (FB)
Well, Facebook Inc. (FB) is another stock you can buy. Facebook is the leading social media platform on the market with more than 4.7 billion active users. It is the owner of popular platforms such as WhatsApp, Messenger, and Instagram. It registered health growth up 56% year over year.
Besides being a social media behemoth, the company is a pioneer in the artificial intelligence industry. And as the world embraces the technology, you can expect its $1 trillion to increase. It also plans to incorporate eCommerce with Instagram.
5. Sonos Inc. (SONO)
Diversify your portfolio
Diversification will not only guarantee you security but also allow you to make more profit. By investing in numerous assets, you significantly reduce the effects of one investment going down. That is should stock of company A fall, you still have company B, C, and D to sustain your overall investment.