Investing in the share market is the buzzword for sending across a message of you being a financial risk-taker. But to attribute just one characteristic that is ‘risk to share market ‘would be undermining the essential art that this indulgence itself is.
Just like any other discipline, investments in the stock market require years of laborious studies of its fundamentals and painstaking research of company essentials or that’s what the popular belief is. If we tell you that anyone can learn stock market investing regardless of their academic background or the know-how of the field, would you believe it?
Well, the paradigmatic example of Warren Buffett can serve to warrant this claim. Owing to the need for space, we can’t sing a ballad of his achievements, but we would suggest you read about him to widen your perspective regarding investment.
What is the share market?
To understand how the share market works, you first need to know what shares or equities actually are. Basically, when a company wants to expand it needs more funding and in the realm of finance, there can be many ways of doing it. One of the ways adopted by the company is issuing shares, which is tantamount to giving a part of ownership to non-institutional investors or common folks engaged in investing. To buy a share is to buy a part in that company and its potentiality of accruing profits in the future. I have used the words ‘stock’ and ‘share’ market synonymously in the entire article.
A share market, therefore, is a congregation where the buying and selling of these company shares take place within the purview of a regulatory authority.
As you have now grasped the gist of what the share market is. Let’s kick start your excursion into the ever-exciting world of investment through these easy steps.
- Know your goals
The first step towards investing in the share market is to be aware of your own individual goals as per your risk tolerance.
The Share market can undoubtedly make the ‘rags to riches’ phantasm come into fruition but the risk factor generally tends to be higher than other equities owing to the fact that the profit itself is relatively higher.
So, one of the first steps in the ladder of stock market investing should involve such deliberations that would in turn help you make better decisions.
- Opening the right account
All the knowledge of investing in stock markets would go defunct if you don’t have means of buying or selling stocks or a brokerage account.
Currently, there are many companies that are offering to open a brokerage account such as TD Ameritrade, E*Trade, Charles Schwab, etc. without you having to spend a single drop of sweat as the total time taken by the process is almost negligible. Also, your brokerage account can easily be funded through ETF transfer, mailing a check, or simply wiring money.
- Types of brokerage accounts
There are two types of brokerage accounts that you may want to open based on your individual needs. The first one is a standard brokerage account while the other one is an IRA or Individual Retirement Account. The difference between them is that the former allows you to withdraw your money with much liquidity and is often for short-term plans whereas the latter allows you to accumulate wealth over time and as the name itself suggests, is for the long term.
- How to make use of money for investment?
The volatile nature of the stock market suggests that any attempt to invest money that you may need, let’s say in 3-4 years is deemed to plummet. So, before moving further in the share market investment journey make sure that the money that you are investing is a surplus, and wouldn’t make much difference in your life if invested for the long term.
Now, let’s know how you can put this surplus into use for investing purposes.
- Asset allocation
The concept of asset allocation is a simple one where you allocate certain chunks of your money in various equity funds based on certain factors such as your age, risk appetite, and practical objectives.
- The age factor
It is a generally agreed fact that the younger you are the more you are capable of riding your way through several ups and downs of the stock market while the older you are the more averse you will become to lodging your money in stocks.
So, the best practice to know how much you need to invest in stocks is to subtract your age by 110 and the remainder should be utilized in fixed-income investments like bonds, Certificates of deposit, corporate bonds, Dividend-paying stocks, fixed annuities, etc.
- Picking up the stocks
In order to propel your stock market investment journey, you must learn how to pick up the right stocks. Picking up the right stocks is an art in itself. But, one thing you need to instill in the very fabric of your mind is that you are deemed to fail in this enterprise and that is absolutely normal. There isn’t a single person whose stock picking was always a success, if somebody claims to be this person then he is either lying or doesn’t know beans about investing.
An array of things that you need to be considerate of while choosing are:
- Try to diversify your portfolio that is to say to pick up stocks across various sectors, such as FMCF, Banking stocks, etc.
- Read the company essentials first, if buying stocks through your own individual agency.
- Indulge in technical and fundamental analysis before picking a stock.
- A share of a smaller company that trades for less than 5 $ is known as a penny stock. So it is prudent to avoid them as they are the stocks responsible for causing high levels of volatility in the market and therefore have more risk to profit ratio. The best practice is to first go for mid-cap companies.
While choosing stocks of a company, one thing needs to be etched into your brain and that is choosing to invest in a particular stock is equivalent to choosing to invest in a business that you think, after analyzing it, would accrue more profits in the future.
Conclusion
These basic steps would give you the right knowledge in terms of how to go about investing. However, in order to hone your skills as an investor, you would be requiring much more than the mere words of this article.
By now, hopefully, it would have become clear to you that investing in stock markets is not at all equivalent to gambling, as the former involves careful deliberations which the latter lacks extensively.
Stock markets are like virtue promoters, rewarding or appreciating patience while rejecting any act of haphazardness.
