Table of contents
- About Investing in stocks
- Types of stocks
- Investing in Stocks
- About Investing in stocks
Investing in stocks is a splendid way to grow wealth. Many people don’t invest in stocks as they have a preconception that the stock market needs a lot of money to start. But it’s not true. You can start by investing a small amount every month. Stocks are a good investment for long-term investors. More time equals more opportunities for your investments to grow. The key to making money in the stock market is to remain in the stock market. The length of the time in the market determines your returns on investments. Investing regularly will make you financially stronger in the long run. There are different ways to invest in stocks. How you will invest in stocks depends solely on your financial goals and your risk tolerance.
2. Types of stocks:
- Individual stocks:
If you have proper knowledge about the stock market uptrends and downtrends and enjoy reading about companies and their performance, then investing in individual stocks will be a good option for you. When the share prices of some companies seem high, you can buy fractional shares if you are just a beginner.
- Stock ETFs:
Exchange-traded funds(ETFs) buy many individual stocks in order to track a principal index. Investing in an ETF is like buying stocks from a broad selection of companies that are in the same sector or have common stock index. ETF shares provide a greater variegation than an individual stock.
- Stock Mutual Funds:
Mutual funds have managers that pick different stocks to beat a benchmark index. When you buy shares of a stock mutual fund, your profits will come from dividends, interest income and capital gains. Index funds are mutual funds that work more like the ETFs. You will never outperform the market in an index fund, you will never under perform it either. If you are a beginner, index funds will be a good option for you.
3. Investing in Stocks:
- Brokerage Account :
If you are well aware about the stock market trends and have in-depth knowledge about investing in stocks then you can open an online brokerage account. You will have to deposit funds in a brokerage account just like you do in a bank account. Then the account balance is used to buy stocks, mutual funds and ETFs. Many brokerage accounts also provide ways to earn money on uninvested cash.
- Financial Advisor:
If you need guidance for investing in stocks and for other financial goals then you can hire a financial advisor. A financial advisor helps you to understand and analyse your financial goals and manages your investments including buying of stocks. They do charge some fees which can be an annual fee, or a percentage of the assets they manage.
Robo-advisors are a simple and inexpensive way to invest in stocks. They invest your money in various fields like ETFs, and manage your investment portfolio. Thus, they are less expensive financial advisors.
- Direct Stock Purchase Plan:
If you will choose to invest in just a few stocks then there are many blue-chip companies that offer plans to purchase their stock directly.
- Investment Accounts:
The two most common types of retirement accounts are 401(k)s and individual retirement accounts(IRA). A 401(k) is an employer sponsored retirement plan. Employees can choose to contribute a portion of their wages to fund a 401(k) account. The funds saved in this account can be invested by the employee in one or more mutual funds offered by the plan. If you want to buy stocks through 401(k), you will have to inform what percentage of your salary you want to deduct from each paycheck. Unlike 401(k), an IRA is not tied to an employer. Instead, individuals open and contribute to an IRA on their own. If you want to buy stocks through IRA, you might want to establish a monthly recurring deposit. You can choose to move funds into your account manually or set up recurring deposits. You can set up an investment account through a broker, or through your bank or through your employer.
Many stock mutual funds have minimum initial purchase amounts. When buying a stock mutual fund, do review what the load is on the shares you are buying. Some mutual funds have a backend sales charge that is assessed when you buy or sell stocks.
Once you finalise the way to invest, select the individual stocks, mutual funds or ETFs that line up with your financial goals and start investing. Your funds will reap dividends and experience losses as per the market trends but in the long run your wealth will grow and give you the best returns. In the beginning do consider enrolling in a dividend reinvestment plan that takes dividends you earn from stocks, ETFs or mutual fund holdings and reinvest them back into the funds or stocks. You can begin with stock mutual funds, index funds and ETFs and gradually go for individual stocks. Finding the best combination of individual stocks, mutual funds and ETFs will take some experimental methods while you are learning to build your portfolio. It is a long-term effort and requires patience and persistence.