Many new investors have read up on the theories of stock market investing but are still unsure as to the actual steps involved in the investing process. How to start investing in the stock market is a question faced by many beginner investors. This article offers you some basic steps that you can start with today.
Why are you investing? Ask yourself your reason for stock investment – is it to get a fixed income every few months? Is it to save up for your retirement? Is it to generate profit over the long term? Is it part of your get rich quick scheme? The latter is called speculating and investors usually do this on a short-term basis; however speculating in the market is not advised for beginner investors. More commonly, investors invest for income (in the form of dividends) or growth (in the form of rising stock prices whose stock can be later sold for a handsome profit).
Figure out how much risk is associated with share market investing and what your risk threshold is. Yes everyone’s is different; yours will depend on many factors including your financial situation, your nature, your psychological needs, etc. There are many different kinds of risks that you must consider before investing in the stock market – everything from financial risk to interest rate risk to personal risk. Once you have understood each type of risk, you must evaluate how risk-averse you are and then set about minimizing your risk and maximizing your profits in the stock market. Some strategies for minimizing risk are market research, diversification and sound financial management and planning. Once you have covered this, then you can begin to understand how to start investing in the stock market.
Investment advice is usually geared toward those with thousands, or at least $1,000 to invest, in addition to the standard three-to-six-months salary socked away in a savings account.
Today we frequently hear stories about traders blowing out their entire accounts or about people who started with 100k only to have it near 20k within a very short period. Time and time again, when I talk to people about trading or my career, I often hear phrases like “It’s way too risky for me..” or “the market is scary right now, how’s it treating you?” Usually my response to that is “It’s not how the market is treating me, it’s how I’m treating the market.”