How to Get Started in the Stock Market
Written by: John Maki
The stock market is not for the faint of heart. There are many ways to approach the stock market but the volatility and unpredictable manner in which the stock market reacts to global markets makes the stock market a risky endeavor for investors who are unaware of how to invest properly. The new age we find ourselves in allows us to communicate, share information, and make business transactions in only a few seconds. What used to be done in person on Wall Street, can now be done through devices that connect via the internet. Apps and websites give investors the opportunity to invest from anywhere in the world. There are of course things that should be said beforehand. To invest you need to be 18 years or older, or control the account created by a legal guardian, investing in the stock market is not a replacement for a savings account, and the stock market is not a means to make quick cash.This blog is meant for those who know how good it is to invest in the future but aren’t sure how. With those things out of the way, let's get started.
To get started in the stock market first you have to decide if you would like to be the one to broker your own investments or if you would like someone else to manage your investments for you. There are many avenues to alleviate control of your investments to someone else and it’s better to do your own research to discover the ways to invest that aligns with your long term goals. But doing it yourself on the other hand also involves much research and hard work. Here are a few things to keep in mind when researching a company to invest in, trends in earnings growth, the stability of a company which usually will have modest dividends, relative strength of the company in its industry, look at a company's debt to equity ratio, price to earning ratio, competent management, and the future of the industry the company is in. These factors all contribute to the safety and to the success of the success of your investments in the company. But do keep in mind that the world throws in a lot more variables that oftentimes an investor will not be able to foresee which can greatly affect a company’s success in the short term.
After deciding on a couple companies who have a promising future, it is important to diversify your investments. A diverse portfolio consists of companies whose business does not correlate with one another. If a company’s stocks fall greatly, and the stocks of the other companies don’t also fall is a characteristic of a diversified portfolio of investments. Not putting your eggs in one basket reduces the overall risk of your investments being affected by a single event or the constant economic cycles of expansion and contraction. Stocks tend to be heavily affected by the fluctuations in the economy, bonds and other fixed-income assets are very safe during economic downturns, and foreign stocks in emerging and developing countries are much riskier due to their high growth but also unstable economies. Keep in mind that low risk mutual funds which are professionally managed and also exchange-traded funds are inherently diverse investments. There are options for high-risk options of mutual funds and ETFs, but keep in mind that you’re investing here not betting.
Focus on the long term for investing.While the idea of buying low and selling high is the main goal of any investor, guessing when a stock is going to be low or high in the next few days is not investing. That’s gambling. It is usually a good idea to wait longer than 5 years before selling stock. Which is enough to outlast an economic downturn but also long enough for a company to grow substantially. That was a mistake that I made when I started investing. And hopefully by the end of this, you understand some of the basics of beginning your journey into investing.
Works Cited
Amadeo, Kimberly. “6 Assets You Should Own Now.” The Balance, 11 Feb. 2020, www.thebalance.com/what-is-a-diversified-investment-3305834#:~:text=A diversified investment is a,to the same economic event.
Investing, Kevin | Just Start. “Focus on Long Term Investing.” Just Start Investing, 16 June 2020, www.juststartinvesting.com/focus-on-long-term-investing/.
Josephson, Amelia. “Investing for Beginners: What You Need to Know.” SmartAsset, SmartAsset, 24 Sept. 2020, smartasset.com/investing/investing-for-beginners.
McGurran, Brianna. “How to Start Investing: A Guide for Beginners.” NerdWallet, 30 Oct. 2020, www.nerdwallet.com/article/investing/how-to-start-investing.
O'Shea, Arielle. “How to Invest in Stocks: A 6-Step Guide for Beginners.” NerdWallet, 9 Nov. 2020, www.nerdwallet.com/article/investing/how-to-invest-in-stocks.
“Stock Picking: 7 Things You Must Know About a Company.” U.S. News & World Report, U.S. News & World Report, money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2013/02/22/stock-picking-7-things-you-must-know-about-a-company.
If someone was to get something like a robo-advisor or a financial advisors, how reliable have those things been in the past? Also, since you are paying that company or person, are there any ways for companies to make a monopoly towards a certain company, or maybe make a certain stock go up to make profits for themselves?
ReplyDeleteRobo-advisors have proven themselves to be just as viable as financial advisors and much cheaper. Of course you are still subject of losing your investment under both but as the capabilities of technology increases, robo-advisors may become more reliable than the alternative in the future, but at the moment I would lean towards a financial advisor. Also companies do buy out the assets and stock of other companies, absorbing that company. Companies do buy stock to gain profit. Oftentimes, companies will buy back their own stock to raise the price of their stock to decrease the supply of their stock on the market to increase both price and demand. Greatly profiting shareholders and current stock holders of the company.
DeleteWhile reading this post I gained major insight on to how to properly invest. I definitely found the statement of "diversifying your investment portfolio" to be the most interesting and important to me. I liked that concept as a lot of investers like to invest in car brands, technology brands, and even other major retail stores. I found this article very interesting to read and it also gave me a few questions regarding how to invest. Which would you reccomend when investing? Robo investing or human investing? What is a good tell to see which companies are good investments for the long terms? Should we buy stocks while the market is crashed like at the beginning of COVID? Are there any security plans for inside of the stock market?
ReplyDeleteso i knew a bit about the stock market before reading this. After reading this kind of wants me to invest just a bit more than before. But i still have a few questions that you might not know the answer to. First question is how do you know that you picked the right company to make money with? Second question is how do you know when to sell? I know you said that you should wait after 5 years to do so but how do you know after or before those 5 years it is good to sell.
ReplyDeleteIt's very interesting to hear that you generally want to wait five years before selling you stock. However, when thinking about this, if a company is booming but you think they are going to soon even out, should you sell you stock or wait? Oppositely, if you feel a company will soon go bankrupt, in general, do you try to sell your stock as quickly as possible or wait it out?
ReplyDeleteI knew almost nothing about the stock market but reading your article put things together and it doesn't seem all that complicated. Do you think starting investing now would be beneficial for first time stock investors considering most stocks have dropped since COVID and are starting to make it back up, or is the stock market too complicated for the new people?
ReplyDeleteThe idea of depending on quite a few companies for investing seems dubious to me. It sounds over complicating, like if you used Verizon, Sprint and AT&A all at once. Wont using multiple companies be expensive, especially if they are all different? Each has it's own terms and agreements that you must remember and organise. I understand the risk of only having one company to depend on, but it seems much easier to accomplish than having multiple.
ReplyDeleteBefore reading this I knew very little about the stock market.I felt very informed when I finished reading. I like how in depth you went with your information and told us how to start step by step. Should everyone invest? is there a best age to invest at?
ReplyDeleteThe whole stock market situation has always confused me, but this has been a rather insightful read. Although, I do still wonder: Is there better times to start investing than others? Should stocks only be used for long-term investments of 5 years or more, or is there shorter term alternatives? What is the difference between a mutual fund and an ETF? What are the benefits to investing in stock vs low-risk alternatives?
ReplyDeleteI had always envisioned the stock market as being a place to make quick money, but I see that you are also correct when you say you have to wait a while to let the stock mature. I agree that 5 days is not nearly enough time to make any sort of respectable money. You have to let the stock grow and give the company a chance to see profits. Even in an economic downturn, it is important to realize that you need to be patient and wait the cycle out. The most important thing to remember with regards to investing is in order for the market to do well, you have to invest in it. When people pull their stock out all at once, it crashes the market. I think you did a great job explaining the basics. Well done!
ReplyDeleteYou gave good advice, but I feel that this isn't directed toward everyone. Say I was an adult in a low income neighborhood with little to no value to my name, and I wished to start investing. How would I go about these things with the little money that I have? What are these apps I could use to invest my money? Only about 55% of Americans report owning shares in the market, not to mention 87% of the nations stock market is owned by the top 5%. Makes you consider the hills lower income individuals have to climb just to get a chance.
ReplyDeleteThe stock market has always confused me a lot and it makes a lot more sense now, but I still have some (probably obvious?) questions about it that I still don't quite understand completely. Is it the buying and selling of stock that contributes the most to profit, or is that the long-term waiting with the stock that you already have that yields more? And once you've invested and if it isn't going well, is it smarter to just keep trying or to to sell your stock and remove yourself from the market? (On that note, is that even completely possible?)
ReplyDeleteI know a little bit about the stock market, but this definitely opened my eyes on how to properly invest as well as how different components affect how you invest and the outcome of each investment. Do you think it's a good idea to invest right away or maybe wait till you are more comfortable and have a stable income with a good amount of income? You also said you want a "diverse portfolio," meaning different businesses; but how many are too much? Is investing in a lot of different businesses better or should you try to keep your investment of a little number?
ReplyDeleteOne question that I have is through your research do you think it would be more beneficial to go through a stockbroker? Or by investing using your own knowledge about the stock market? I think that if you know your information about stocks it would be more worthwhile to invest on your own because then you do not need to give a cut to your stockbroker. I also think that as long as you invest over long term you will end up making money, due to the fact that long term investing in the stock market is much safer and less risky than day trading is. I thought that this article helped me understand stocks better and what a mutual fund is, I will have to keep this in mind for investing in my future.
ReplyDeleteBefore reading this I knew all most nothing about the stock market. But I wanted to start investing into it. Now I know to look for debt to equity ratio and price to earning ratio. You said selling was your mistake when you started. Is there any other basic mistakes people make that I should know before investing?
ReplyDeleteBefore reading your very well explained work on the stock market I knew very little but when I finished reading I felt very well informed with everything and you didn't leave me with much questions expect what age do you think is best to start investing at? is there an age limit you can you start when you are young like credit scores?
ReplyDeleteBefore I read this I didn't know that you should normally wait 5 years before removing an investment and I also didn't know about diversifying investments. I find it very interesting and I feel like not many people know to diversify. Is that a common mistake that people make? How much is recommended as a starting value for investing?
ReplyDeleteWhen researching information for your piece, was there a consensus to wait five years before selling stock? Before reading this I had no idea how the stock market worked at all, however, it would seem like you would want your assets to grow over time which is why five years would be the general time frame. Personally, would you want to wait longer before selling? Also, how would these investments be impacted if the company was not succeeding, would it be smarter to sell your investments before the five years was up?
ReplyDeleteI knew that it was a long term thing, but I thought it was like a year or so, not at least 5 years.
ReplyDeleteThis is a very interesting thing to write about, most people hear things about the stock market but don't really know the specifics of it, this helped me see how complex it really is and how, if I wanted to I could get started with it.
ReplyDeleteOverall it is a very well written piece. Not only is it informational but the reader can connect to it. I like how you put the steps in chronological order. It helps the reader understand it all better. Maybe when you list off good qualities of a successful company, you could add some real world companies such as Amazon. You use authors craft in some part of your paper which is always good to include. All in all it entertaining and useful. Good job!
ReplyDeleteThis was a very interesting article to read, and I enjoyed getting some "base" knowledge about stocks and investing. I really liked the comparisons that you made throughout your post, about investing being long-term, and unlike betting. I've always wondered what would happen if a really big economic event happened and put your stocks into jeopardy, but I liked how you said, "Not putting your eggs in one basket reduces the overall risk of your investments being affected". I know that this wasn't an opinion article, but you did mention something about doing your own investments or having a broker do them for you. Which would you choose? Does it all base upon your knowledge?
ReplyDeleteI remember recently reading an article about recommendations for beginners in the stock market and just how important it is to invest. They stated that it could be even more effective than using a savings account as a good investment in the stock market will increase at a faster rate than the interest of a savings account at a bank. The author of the article also debunked any of the rebuttals that people may have to not start investing, so I think it is great that you personally have experience in investing. Your final paragraph was especially interesting. You applied some knowledge that you have accumulated as you have participated in stock exchanges, such as not trading for at least five years, which otherwise, some students may have not known. You had a very eloquent balance of explanation of the stock market and trading and also an explanation of why those facts will impact a investing newcomer.
ReplyDeleteI knew a little bit about stocks before I read this but now I have a much better understadning of it. It was definetly something I was planning on doing in the future and some of my friends already do it. Investing some money can do a lot for you in the future and you could have so much more than you started with. I did not know that you should wait at least 5 years to sell you stock though.
ReplyDeleteI have always been scared of investing but I never knew that you could have other people manage it for me, that seems very useful at the beginning when you don't know too much about investing. The risk of losing a lot of money always scared me as well but after reading this it really got me in the mood to try and investing and maybe try some investing simulators just to test the waters.
ReplyDeleteWhat used to be done in person on Wall Street, can now be done through devices that connect via the internet.
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