A handy guide to investing in stocks

09th November, 2021

Investing in stocks implies buying a tiny bit of ownership in a public company. So, when you invest in it, you hope that the company performs well and the stock grows over time, increasing its valuation. Consequently, more investors will be interested in buying that stock for a higher price. Hence, you can make a good profit if you decide to sell the stock. You can open an account online to invest in stocks. Read on to know more.

Decide how you wish to invest

These days there are several options available when it comes to investing. Spend time researching the basics of investing. So, you can balance your existing knowledge with your investing style and decide the time and energy you are willing to put into investing.

Once that is done, there are other big decisions you must make.

  • Do you want a professional financial advisor to invest for you?
    This can be a good choice for someone who wishes to spend only a few minutes in the day worrying about their investments. This can also be a preferable choice for someone who barely has any knowledge about investing.
  • Do you wish to manage your investments yourself?
    This can be a good choice for someone with substantial knowledge or adequate time. When you wish to manage it yourself, you will require a brokerage account.

Your decision here will determine the kind of account you have to open.

Deciding on an investing account

When you invest in stocks, you will require an investment account. If you chose the second option, you would need a brokerage account, whereas if you chose option 1, you would need a Robo Advisor account. In both cases, you can open an account with very little joining fee.

  • Opening a brokerage account
    If you open an online brokerage account, buying funds, stocks, or any investment is quick and cheap. You can take your broker’s help and open an Individual Retirement Account or IRA. Alternatively, you can open a taxable brokerage account if you have already saved enough for retirement in the employer 401 (k) or any other plan.
  • Opening a Robo-advisor account
    If you avail of the Robo Advisor services, you get complete investment management. This will provide you with investing benefits but does not need the owner to do the legwork needed to choose from individual investments. The companies will inquire about your investment goals when you get on board and then build a portfolio to help you achieve those goals. It might seem pricey, but the management fee, in reality, is just a tiny portion of what a human manager would charge.


Determine how much you can allocate for investments

Firstly, understand that there is a certain portion of money you must never invest in stocks. The money you might need in the next five years should never go into the stock market. Of course, there is a good chance that the stock market will rise over time, but there is no certainty in the short run. If you tracked the market in 2020, you must know, the market dipped by around 40% during the COVID-19 pandemic. A 20% drop is not even considered unusual.

You should not invest the following amount in stocks.

  • Emergency fund
  • Next year’s vacation fund
  • The amount allocated for your child’s impending tuition payment
  • Down payment amount of the home you want to buy in a few years

Select your stocks

Now that you know the amount of money you have, you need to decide where to put your money. When investing, remember:

  • You should diversify your portfolio
  • Put your money in businesses you understand
  • Do not invest in penny stocks
  • If you are a beginner, avoid high-volatility stocks
  • Understand the fundamentals of stock evaluation

Keep investing

One of the most definite ways to make it big in the stock market is putting your money in good businesses. You must buy stocks at reasonable prices and hold on to them for long to avoid incurring losses. There will be some volatility, but in the long run, it will be worth it.