Beginner’s Guide To Stocks: 10 Tips To Note Before You Invest
Stock investing is an amazing way of making and growing money. The beginner’s guide to stocks is a set of tips and rules to take the riskiness out of the investing by beginners. Learn these step by step investing preparatory guides to ensure your trading success.
These 10 tips are worth observing before you dive into making real money in stocks. This applies to other asset classes also.
1. The Most Important Step
The first thing to figure out is where you’re at now in your financial status. Are you debt free or how much personal debt have you taken on. Have you recently received a pay raise or you’re expecting a wind fall coming through soon.
With this general financial position outlined, this beginner’s guide to stocks investing will set you up for a good start. The equity market has a long range horizon. The better you’re prepared, the better you’ll be able to sail through your investing journey to achieve all your personal financial goals.
2. The Baby Step
The next step into the beginner’s guide to stocks is to know what you want out of life. Are you looking to achieve a broad based financial freedom goal? Does this include early retirement? Certainly, we would hope so.
The best way to figure out what you want is to think on paper. Write down as many as 10 items or goals and dreams you would like to achieve – from now till your set time of retirement. This requires the use of a personal financial plan. It outlines and categorizes both the important aspects of your money, and the good things that money can buy in life.
3. Invest In Yourself
Investing in you is the most crucial stage of investing, and many have disregarded this virtue. You should be your first investment. Build a perpetual financial literacy and money mindset. Be a learner about how stocks work, and also the economics of individual stocks you’d like to own.
You can find a lot of beginner’s guide to stocks books, finance blogs, finance relate courses, and many other resources. You should spend as much time studying how to make and grow money, as you did earning it. But without having the luxury of time, you can just spend an hour a day of reading about investing. Then follow it up with 3 hours a week of managing your money and portfolio.
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4. Create a Financial Plan
Your financial plan could just be a simple set of items you could check off on a piece of paper. Nothing fancy. You could upgrade it to a small note book, and a good App to manage things in an orderly manner. You personal financial plan can be your ultimate beginner’s guide to stocks, and investing in other asset classes.
It should contain clear financial goals and objectives, emergency fund requirements, and budgeting notes – such as the 50-30-20 budget system. This goes a long way to guide you on the weight of assets to carry in your long-term strategies as well as your short-term strategies.
5. Paper Trading
For a beginner’s guide to stocks, it is worth mentioning that paper trading play a key role. Paper trading in modern terms refers to practicing your trading using a stock simulator. This online portal tracks the stock market in real time and allows you to trade without committing real money.
You can get you feet wet with these free online stock simulation platforms. Practice all your trades and strategies fearlessly. You’re allowed to take simulated positions in stocks, options, forex and other assets – depending on the platform.
6. Low Risk Alternatives
Do not despise the slow growth in other low risk investing alternatives. They come in all shapes and sizes. They are: Index Funds, ETFs, and Money Market instruments. As a beginner’s guide to stocks, we must mention these awesome entry points into the world of investing.
Index Funds and Exchange Traded Funds (ETFs) track an existing index, such as the S&P 500. Some may even track certain sectors like Gold and other metals. Crude Oil and other Commodities also have funds tracking them exclusively.
This is a good way to get some skin in the game without risking sharp volatility that is common with individual stocks. Lack of understanding of business fundamentals should also not be a barrier to investing in the stock market. Investing in low-risk alternatives is also a great way to get started.
7. Individual Stocks
Individual stock investing is our ultimate and original aim. The best way to get into stocks could be to allocate a small part of your savings (cash parked for investing purposes) of about 10% to stocks. The rest of the 90% can be held in cash equivalents or money market instruments such as Treasury Bills or Certificates of Deposits (CDs) for instance.
You will enjoy small yields compared to stocks. But you’ll slowly move them into equities (stocks) as you garner a certain amount of financial confidence. Your 10% position in stocks need not be in a single company. You can spread it into a handful of stocks – about 5 or more. Nowadays, your broker could enable you buy fractional shares in stocks, so your small capital goes a long way. You’re creating your own luck this way.
8. Jumping Into The Deep End
With this beginner’s guide to stocks and other financial asset classes, you weigh the risks and rewards for yourself. Personal research and due diligence comes in very handy at this point. Stocks themselves have a fair amount of risk associated with them. But derivatives such as stock options present even greater risk if you don’t know what you’re doing.
It is worth trying out stock options using an online stock simulator. But allocating your hard earned money is a move recommend for experienced investors and professionals. Paper trading with a simulator will give you a good feel of this powerful asset.
9. Stock Research 101
A beginner’s guide to stocks cannot be complete without a word about stock research. Your personal research is most pivotal to your investment journey. This will give you some confidence when you make your trades.
All online brokers and even most stock simulators have a research area. You can screen stocks and find out data about their technical and financial attributes. Get current news and press releases to base your investment decisions off of.
10. Investing Like A Pro
To become a complete investor, you would need some amount of help – especially if you’re not professionally trained or accredited. The best way is to find yourself a mentor. You can also have a role model that you constantly watch, track and read about – like Warren Buffett.
Can an individual pick stocks like Warren Buffett and beat the market? Sure, why not!? It is highly unlikely but possible. It requires a lifelong dedication to a sure and single investment philosophy. There are several of them out there. The best path I’ve found is Value Investing. This was a brain child of Ben Graham – the mentor of Warren Buffett.
Conclusion: Beginner’s Guide To Stocks
Stock investing if fun once you figure out you’re and where you’re going. Many investors today who are doing well had to follow a similar preparatory path before they got through the front door. Some of standardized ways self taught investors make money in stocks is through blue chip stocks with good dividend yields.
What do you make of this beginner’s guide to stocks? What sound ideas have I missed that could have made this article more complete. Please comment below.
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