Any people want to get into investing in stocks but are intimidated by the process for different reasons. One of the main things holding them back from investing is they don’t know much about it. After all, it’s not like a savings account or money market fund where the money you put in only has two movements; go up or go down. It doesn’t involve the risk of losing everything you invested, which is one of the greater risks of getting into stocks.
Education and Emotional Self-Control
This risk is only made greater if the investor doesn’t have enough knowledge or the emotional self-control needed to succeed in the game. These two things are very important.
Knowledge of how the stock market behaves will help an investor make wiser decisions. Perhaps those who have an educational background in certain business courses, a business certification RPL course, or any financial literacy courses have an edge over those who don’t but that doesn’t mean that you need a business degree to get into stock market investing.
You just need to have a better understanding of the basics of investing and a good grip on your emotions. A lot of investors have failed because they had no emotional control over it. They let their emotions cloud their judgment which led to a series of wrong decisions that made it virtually impossible for them to recover.
9 Stock Investing Steps for the Noobs
For those who are genuinely interested in or new to investing in stocks but are apprehensive, you might find the following steps very helpful as you set out on your journey to becoming an investor:
Step 1: Identify your goals
One good thing to ask yourself before you decide to get into investing is this: Is my financial situation at a point where I can accommodate a new financial activity?
Once you determine that you’re financially able, meaning you have a stable source of income, you have an emergency fund in place, you have very minimal (or zero) debt, and your expenses are in order; determine your financial goals. Is this for your retirement or something else? When do you plan to use the money? Who else will have access to it?
Knowing these things will help you clearly define your investment goals which will determine the steps you are to take.
Step 2: Set some money aside as a cash reserve
Once you’ve finally settled in your heart that you’re taking the leap, you need to set aside money as a cash reserve. This is on top of your emergency funds. Doing this will give you the peace of mind that you have money set aside that is not at risk of loss.
Step 3: Set up a retirement account
If you already have money set aside as your cash reserve, the next thing for you to do is to set up a retirement account. This should be one of your primary financial priorities. Invest in a 401(k) plan or an Individual Retirement Account (IRA). This is a good stepping stone because it gives you the chance to make a long-term investment which builds the patience needed in investing.
Step 4: Consider investing using online services
Now that you’ve already secured your retirement, it’s time to look at your non-retirement investment options. A good place to start is with online investment platforms. Some people prefer to do it independently of online brokers and only consult with financial advisors occasionally. Others prefer to work with online brokers. Either way, do your research and see which one works best for you and your goals.
Step 5: Start with mutual funds or ETFs
Before you play with the big boys in the stock market, you first need to get some practice. Mutual funds and exchange-traded funds (ETFs) are ideal for newbie investors as these funds are managed by professionals. It lessens the pressure on the investor’s part of choosing the right stocks to invest in.
Step 6: Play it safe with index funds
To make investing in mutual funds a lot easier, stick to index funds in the meantime. You may not outperform the market with it but it also guarantees that you won’t underperform as well.
Step 7: Be educated
As we mentioned earlier, education about the subject is crucial. Again you don’t need to be an expert but make sure that you get enough knowledge that will allow you to make better decisions with your investments. Invest in financial literacy and stock market investing courses to widen your understanding of how things work.
Step 8: Get into individual stocks investment gradually
Once you’re already confident about investing in stocks, take it slow and don’t go all in. Do it gradually. Invest in stocks one at a time and avoid letting your emotions and excitement get the best of you.
Step 9: Diversify your portfolio
One last thing newbie investors should know is it is important to diversify one’s investment portfolio. This somehow ensures the investor that his or her capital is spread out in several other income streams that in case one fails, he or she has other investments to earn or recover from. Never put all your eggs in one basket.
Investing is a tricky thing to get into. You need to be patient and have self-control. You need to keep educating yourself and take time to study the stock market and its movements. But if you really put your heart and mind to it and get the hang of it, you’ll be alright.