So you are planning to invest in stocks. Well it is never too early nor too late to start investing in stocks. It is one of the best places where your risk can be rewarded by return.
And moreover investing in stocks would give you that added advantage of enhancing the type of investments that you have done, which is always a good thing. It is called diversification. As each type of investment carries a different type of risk so it is always wise to have a variety of investments.
Now let’s see how to start investing in stocks by the step by step guide that is provided below.
Step 1 – Set Financial goals
The first step before starting to invest in any type of investment option would be to set financial goals. Now when you do that you would need to be as specific as possible. You need to pen down what you want from life and then plan on how to reach there. In this plan there can be a part of investments in stocks. Now check what role it would play in your financial goals achievement and how to best use it. So have a goal from your stock investments so that you can work according to that.
Step 2 – Risk tolerance
The next step would be to determine your risk tolerance. This is a very important step as not all people have the same risk appetite and it might depend upon a variety of factors such as the life stage, financial goals, etc. So you need to know what risk tolerance you have. Now you need to be investing in only those areas which suit your risk tolerance.
It also depends on the type of job or business you are doing. For example if your job is a stable then you can afford to invest more in stocks to take high risk in anticipation of a greater return. But if your job is not stable then you would need a more stable investment option.
Now after these two steps your portfolio and risk tolerance allows you to invest in stocks then go forward with the further steps.
Step 3 – Learn about the market
Before starting to invest money into stocks you need to know how exactly does the stock market work. For this you can start reading books of Graham or Fisher. These are the top two writers when it comes to stock markets. Also you can start reading the wall street journal or Warren Buffet’s essays. Also you should start following the market by reading the daily reports and listening to advice by experts to learn about how the stock market and economy are behaving.
Step 4 – Test your learning
It is a really important step to check what you have learned over time and are you really able to use that learning to good effect. You can do this by writing down your expectations from the stock market for the day. You need to take into account the various factors visible in the economy.
These can be favourable conditions for a particular sector, some new deal of a company resulting in positive expectation from the company, etc. Once you have done that you compare your prediction with the actual outcome and see if you have predicted accurately or how close you were to actual performance of the market.
Step 5 – Investing
Once you start predicting the market movement with some sort of accuracy then you can start investing in the stock market. For that first of all you need to build a portfolio of which stocks you would like to buy. And while you do that make sure you choose stocks from a variety of sectors because if you had read the investment related books well then you must be aware of the importance of diversification by now.
While you are building your portfolio you need to mention how much money you want to invest in that particular stock. For zeroing in on stocks you can use various types of analysis that you might have learned from the investment related books mentioned above. So build a portfolio and start buying the stocks shortlisted. For buying stocks you can select the brokerage firm which is offering you the best deal and is suiting your needs.
Step 6 – Hold your temptation and Keep Investing
Once you have stocks in your portfolio and the prices are going up then you would need to suppress the temptation of selling it. Keep holding onto your stocks and give them good amount of time for a good return.
You also need to keep investing for building a more diversified and high valued portfolio. You need to keep an eye on investment opportunities. When the market is bearish then you invest more money. This is because historically speaking the market has always rebounded back.
Step 7 – Analysing the performance
You would need to keep analysing the stock performances by using various benchmarks to compare which stocks are performing and which are not. Give stocks a target that needs to be achieved to keep having them in your portfolio. If they fail then you can take them out of your portfolio and buy new ones.
You need to keep updating these benchmarks as well with the changing scenario. You have to be vigilant and reactive to the changes occurring in the market.
By following these steps you can start investing and earning from stock investments.