10 Tips On How The Stock Market Works For Beginners
The desire to make extra money can be fulfilled through a variety of avenues, whether it be side projects or selling unwanted belongings. However, one interesting way is to enter the stock market and build up a profitable portfolio. Of course, there’s the trouble of you not knowing where to begin.
Before and during your time investing in different companies, keep your life plans in mind. This involves a variety of strategies and details to follow, but the main objective is to plan properly and make the stock market work around your needs.
Even if you’ve already begun investing in a few companies, you’re still a beginner and need some guidance before making major plays. Read on for advice on how to use your time and money well to better serve you.
How Do I Teach Myself The Stock Market?
Before you begin to learn the ins and outs of the stock market, you should first be ready to take it slow. Even with all the tips in the world and a large reservoir of money, the market usually changes by mere percentage points. Make sure you’re ready to invest not only money, but also time. Then, setting yourself up with steady research and a reliable site will help you learn over time.
How Much Should A Beginner Put In The Stock Market?
If you plan on seeing any solid returns on your investments, you best be sure to invest enough in the market. Of course, how much someone should put in depends on how much they can put in. If someone is in dire economic circumstances, they may want to stay away from the stock market for the time being.
However, if you’re ready to invest a decent sum and can afford to lose it, investing somewhere between $500 and $1,000 can yield decent rewards. Speaking to a financial adviser can help you to better understand how you should start your day trading.
10 Tips On The Stock Market For A Beginner
Whether you’re investing in the stock market to open an avenue for a career or just out of curiosity, you’ll surely like to know what you’re doing. Without any relevant experience or education, many can find the stock market to be daunting, but with these 10 tips, you’ll be ready to overcome such initial challenges.
Achieve Some Financial Security
When it comes to the stock market, you have to spend money to make money. Unfortunately, this can also mean losing money. Whether it’s the result of an unpresented turn or a risky choice gone awry, some investments just don’t pan out.
To plan for this result, you may want to ensure that high-interest debts are paid off. As aforementioned, returns in stocks come from percentage points and are slow. Even when successful in the market, such a slow burn can’t keep up with quickly accumulating debt. If it’s between taking care of your debt and investing, you may want to consider prioritizing the debt.
Additionally, an emergency fund can help put your mind at ease. Having an amount between three and six months’ worth of income as a backup is a good way to help fix any potential setbacks or troubles.
Before you start navigating the stock market and choosing companies to invest in, be sure that you understand where you stand and what you want. Essentially, you’ll want to decide whether or not you’re investing for a decades-long haul or for just a few years. This quick chart can help you decide which you’re aiming for.
| Short-Term | Long-Term | |
|---|---|---|
| Time Span | Multiple years | Multiple decades/generations |
| Example Objectives | Paying off wedding, child’s college, or a house | Saving up for retirement or to leave a sizeable inheritance |
| Volatility and Risk | Stay away from risk and stick to reliable assets | Can recover from significant loss, meaning high-risk and high-reward is best |
| Invest In… | Safe “blue chip” stocks, such as those from companies like Coca-Cola or Apple | Small companies and start-ups that can pay off majorly in the long-term |
By figuring out what you want out of the stock market and how it can help your life, you can guide yourself to make decisions that are best for you.
Pick The Right Platform For You
There are a variety of ways and places to join the stock market, but it’s important you choose one that works for you. As you start off, you’ll probably want to prioritize a platform that is easy to use and/or prepares you with information. You can look into the following platforms:
- TD Ameritrade,
- Fidelity,
- Robinhood,
- E*TRADE,
- Merrill Edge.
Each of these sites and apps can help you personalize your portfolio and view various stock options along with their history and trends. TD Ameritrade is highly recommended for beginners, as it offers you educational materials on various topics, all of which are searchable and easy to find.
Research Potential Investments Thoroughly
Before you make your first or any investment, make sure you understand and are comfortable with your decision. While the bottom line for you may be money, there’s more than numbers to consider before purchasing or selling a stock. You should look at a variety of factors, including:
- Price-to-earnings ratio,
- Earnings per share,
- Return on equity,
- Patterns,
- Recent increases or decrease in stock value.
A lot of this information should be available on your app or site of choice, making it easy for you to go over what’s important. You should also check the news to help predict which companies will have an increase or decrease in stock value. For example, a shortage of medicine will mean a decrease in value for a pharmaceutical company. When something like this happens, you may want to slightly adjust your plans.
Do Not Become Overactive
One of the key lessons about the stock market is to think in the long-term and not be phased by the short-term. Trading overactivity is when traders become so focused on singular events and lose out on potential returns in the future. Doing so is a disservice for themselves, as they let themselves get cheated for no reason.
It’s better to check in on your stock levels approximately once a quarter rather than once a day. The market is very fluid and constantly changes, making all the numbers and percentages that come with it disorienting. Every company loses value at some point or another, but that doesn’t mean it’s time to jump ship. Make sure you limit your actions and don’t look at the numbers too often to see the best returns on your investment.
Have A Diverse Portfolio
When making decisions about which companies to invest in, do not settle on just one. Of course, don’t invest in any company that catches your eye, but be sure to spread the money around. This is good not only because it broadens your horizons and opens opportunities, but it reduces risk.
If you were to invest in one or even as little as three companies, one going under will mean you losing a lot of money. All the research in the world can’t foresee or prevent the possibility of a company suffering major, unexpected losses. As such, it’ll be best if you invest into 10 different companies or so. By doing so, you’ll reduce a major loss to a minor loss that can be made up over time.
Automate Your Finances
Once you’ve grasped the basics of the stock market and how to invest, you can start making your goals a reality. Life beyond the stock market moves on and you won’t be able to spend every moment of your time looking over finances and transferring funds. In fact, there may be periods of time in which you have no time to do so.
To help with this, you can automate the following:
- Bank account deposits,
- Retirement money,
- Monthly investments.
You can do this to cater to your goals and ensure that your money is being held right without you even looking. All you have to do is check in once in a while to make sure your investments do or do not need any changes.
Use Time When Deciding Investments
Using the simplified “buy low, sell high” is not only cliché, but is also short-sighted and not very realistic when applied to actual investing. Instead, it’s better to use your time wisely to ensure you get the most from your investments. You can do so by using the following strategies:
- Dollar-cost averaging: rather than putting all of your money in a stock at once, it’s better to slowly invest in it at weekly or monthly intervals. The same amount of money is put in each time, but the number of stocks bought depend on the price at the time. It can help you by being prevented from making ill-informed gut decisions,
- Buying in thirds: again, you’re investing is split up over time. Initially, spend 1/3 of your desired amount and save the other 2 parts for when you believe the stock will soon rise, allowing you to maximize your gains,
- Invest in every competitor: if you’re looking at a particular industry, invest in each of its companies rather than just one. Similar to diversifying your portfolio, this allows you to get a feel for which company you prefer and which companies you want to cut.
Know When To Buy and Sell
Nearing in on a new company to invest in can be a tough decision, just as it is when deciding to leave or not. This means paying attention to the company itself. Buying a stock when it’s low can lead to further losses if the company doesn’t recover. Buying a stock in a company when it’s about to release a new product, however, will lead to a profit.
On the other side, selling a stock when it’s high can lead to you missing out on even more value. Leaving an investment should only come when it’s appropriate, such as when the company loses capital or a major customer.
Ask Around
Just like any other business or hobby, stock market trading has a community with a wealth of knowledge and opportunity. There are more than a few seasoned veterans that are enthusiastic about sharing their knowledge. Whether this be through online forums or friends from work, asking around about tips or strategies can help give you perspective.
There are also financial advisors that you may want to speak with. They can help you figure out real-life costs and problems, as well as how to navigate the stock market. If you hire someone, make sure they have credentials to make sure their information is coming from a place of validity.
Conclusion
The stock market may seem like a rough ocean at first, filled with endless waves of numbers and information. Truthfully, just as with anything else in life, you have to figure out what you want for yourself and how to obtain it. By following these tips and keeping your logic in check, you’ll be happy you entered the stock market.
