It can be tricky to figure out where to invest your hard-earned income. For decades, stock markets proved to be one of the best ways to build long-term wealth. As a beginner, the stock market can be intimidating; however, technology and online platforms can empower you to more easily control your wealth and navigate the investment world.
Why Do People Buy Stocks?
Aside from investing in property, stocks (or shares) deliver long-term growth far beyond other investment methods. Despite the volatility of stocks, an investment window of close to a century has produced returns of close to 10%.
Purchasing stocks can be more lucrative than keeping cash in a bank or investing solely in bonds. Moreover, some stocks yield dividends, which is the yearly distribution of company profits to shareholders. In other words, you can get a cut of the profits on top of the stock value.
Different Ways to Get an Account to Buy Stocks
There are several different ways to buy stocks, but all of them require an account through a brokerage. Opening an account — which may be self-managed or managed by an advisor — is the first step to buying stocks. For hands-on investing, an online account gives you access to markets at low transaction fees.
Depending on your investment goals, a reputable brokerage offers many services. Full-services brokerage includes:
- Purchasing stocks
- Analyzing markets
- Researching companies
- Estate planning and advice
Stockbrokers provide many services to aid in building your portfolio. However, with more involved services, there are higher fees to consider.
Robo advisors represent a new way of investing where Artificial Intelligence (AI) converges with the investment world. Robo advisors are automated services that use algorithms to provide investment options to suit your needs. They have the advantage of lower rates compared to human advisors and are perfect for hands-off investors.
Learn About the Stock Market and Different Stocks
When investing in the share market, it pays to do your research. Even if you intend to take a more hands-off approach, doing your homework ensures you can be confident in where you invest your money.
Do Your Research
Whether you’re looking for long-term passive investment or active trading opportunities, it’s important to do due diligence before making decisions. The following are types of research you might consider before buying stocks:
- Gather company financial reports: here, you can study the numbers and see how the company performs. Focus on revenue, net income, price-earning ratio (P/E), return on assets (ROA), and company debt
- Do qualitative research: study how the company makes money, its competitive advantage over similar firms, the management, and its prospects.
- Look at the big picture: where does the company fit into the economy? Then, see if the company has a track record of managing difficult times.
Calculate How Much To Buy
Before investing, it’s a good idea to calculate how much you might want to invest. Many experts recommend having emergency savings equal to three to six months of expenses. Any savings beyond that may be good for investing.
To determine how many shares of a certain stock you can buy, start by looking at the real-time price of the stock. Then, divide your investment amount by the current stock price. That number represents the number of shares you are able to purchase. Remember to factor in any fees your brokerage may charge you for each transaction.
Execute Trades in Your Account
With some accounts, a broker may handle your orders. For self-managed accounts, there are several methods to executing trades:
- Market order: here, the broker purchases the lowest stock price available. Although, the price you’re looking for won’t be guaranteed due to fluctuations in the price.
- Limit order: there are two categories, buy and sell limit orders. These orders the broker to buy only at a specified price.
- Stop orders: these are similar to market orders. You set a point where an order executes only when the price falls beyond that point. Stop orders are further distinguished between stop limit order and trailing stop order.
Buying stocks doesn’t need to be complicated. With a little research and planning, you can grow your wealth through a diverse portfolio of stocks. Whether you want to actively trade or passively invest, there are many methods to help you with your investment goals.