Read This before buying Stocks for the first time!!!
The process of investing can seem tricky and be intimidating. But it doesn’t have to be.
While we’re often told that investing plays a key role in our financial wellbeing, participating in the stock market can be a downright confounding experience for newbies everywhere.
The biggest reason for not investing in stocks? Not having the knowledge to do so.
The process of investing can seem tricky and be intimidating. But it doesn’t have to be. Remember, you don’t need a whole lot of money to get started. Getting over fears of the stock market, though, comes down to getting over a fear of the unknown.
And that means starting with the basics. Here’s what you need to know before buying stocks for the first time.
1. Difference between trading and investing
It sounds simple, but it can be easy to confuse “trading” with “investing”. When you’re investing in a company, you’re buying a percentage of the company that you’re hoping to hold on to for a few years.
If you’re investing in stocks, you’re also becoming a partial owner of the company. If you’re trading, however, you’re looking to buy and sell stock within a short time frame by predicting how much the price of a share will rise in a given amount of time.
2. Your objectives
Before you go about buying stocks for the first time, it’s a good idea to break down your short and long-term goals. Why are you investing your money and what are you hoping to get out of the stock market?
Are you looking for aggressive growth [or] extra income from a steady dividend? Having those answers will help determine what kind of portfolio you’re looking to build. Secondly, it’s important to understand the level of risk involved.
You do not want to start picking and investing in stocks with money that you know you will need for a down payment on a house less than a year from now.
3. Pick an investment you’re knowledgeable about
It can be tempting to want to buy only stock from the big-name companies you hear about in the news. Chances are, however, that stock prices for those companies are already really high and, if you did buy, you’d own a miniscule share without too much room for growth.
It’s always a good idea when buying stocks for the first time to start with industries that you’re extremely familiar with, since you’ll have insight that other traders won’t. That knowledge will ultimately help you make more informed decisions about a company’s overall well-being and financial prospects.
4. Get a Demat / Trading account
Okay, so you’ve done your research and you’ve outlined some financial goals for yourself. It’s up to you whether you decide to work with a broker or do things on your own via an online platform, but once you’ve made your choice, it’s time to set up a brokerage account.
Finally, remember that investing is a game you play for the long-run. Be patient with yourself and choose one stock to start with. You have years to create a great portfolio but for now you are learning the basics. The good thing is that the sooner you start, the better off you will be!
Co-founder of AccounString Management