Investing in stocks for beginners – this is a topic that deserves special attention, as professionals who have long made money from investing in securities already know everything about the topic. On the one hand, it is believed that investing in stocks is not the best way for beginners, since with small amounts (say, less than 1,500 dollars) it’s silly to wade into the sea of finance: they say, you won’t go far and only get your feet wet.
On the other hand, many experts are of the exact opposite opinion: the sooner you begin to learn about the world of stocks and stock trading, the better. After all, everyone there takes risks – experienced financiers as well as beginners. Although for the latter, if they invest small amounts in stocks initially, the risk of big losses is minimal, and secondly, the sooner you start, the more you will earn in the long-term perspective, even with the initial tiny investments.
Why do you need stocks?
In the world of entrepreneurship, it is believed that investing in stocks is a fairly simple and convenient tool for making a profit, and, as we have already said, not only for those who have large sums to invest: after all, you can get lucky even with 100 available dollars.
The first point. What are stocks? Answer: a type of securities. The company issues them, and these securities give the owner the opportunity and the right to get a certain portion of the profit they make. The better part of the shares belongs to the entrepreneur, the greater his influence on the company is. But the last point is not for beginners.
When a company needs funds for development, it offers its shares to investors. As soon as an investor buys the shares, he, firstly, automatically receives a certain stake in the company, and secondly, he can start earning. The latter is carried out on exchanges where companies’ stocks rotate; roughly speaking, they are sold and bought. Companies develop and earn money, and along with this their shares get more expensive, or valuable. At certain intervals, usually at the end of the year, the profit of the company is calculated, which is then divided proportionally among all holders of securities and, accordingly, profits – dividends – are distributed.
Don’t fear the broker
For the investor who has decided to take the first step into the world of stocks and trading on the stock exchange, it is best to seek the help of a specialist. Or rather, first, the future investor should read a lot about this type of business, listen to dozens of training courses or watch video lessons, and only then take this step. And it’s better if he first heads not to the exchange, but to the broker. Who is a broker? It can be a person. Although at present, the word “broker” implies the work of a whole team: to get a better result.
A broker (either a person or a team of specialists) is like a real estate broker. It is profitable for him to find and sell more properties to get a larger percentage of the profit from his clients. The same goes for a stock broker: it is better for him to offer the investor the most profitable stocks of a particular company, and then do everything so that they are sold more actively and are generally quoted high at the exchange, so that he can make a lot of money.
Of course, the investor himself can try to enter the exchange (there are a lot of resources on the internet for this), but it’s important to understand that it’s practically impossible to quickly learn to trade in that system, and mistakes, alas, are inevitable. And every mistake brings financial losses. We don’t wish to scare anyone – we are just laying it out as it is. Do you want to try it out anyway without a broker? Why not?
The internet is full of paid and free courses in many languages: how a beginner can invest in stocks and trade on the exchange. What is a stock exchange? This is the structure that regulates the mechanism of the market, for example, securities, currencies and various goods. Since you decided to try out the stock exchange on your own, we give you this primary advice: If you want to avoid serious financial losses, then we recommend starting out with the minimum allowable amounts – just for training. Worth noting, though, that many online brokers offer novice investors an interesting service: you can open a demo account, where you can safely make your first transactions and generally understand the whole mechanism.
Should we buy a “piece” of Google?
When you decide to invest in stocks, it is important to know that there are different types. There are stocks of the common variety, which give the investor the right to directly participate in the company’s life, but they do not guarantee regular payouts. Shares of the second type are preferred shares. These provide regular income.
However, if you are a novice investor and want to just try to make money “on shares” that rotate in the stock market, then such a question as having influence on the work of an entire company should not be a concern for you at all. Imagine: you buy only a few shares of Coca-Cola, Google or Microsoft, which these giants issue for sale to obtain additional profit – not to give every small-scale investor the right to influence the operation of the larger system. In addition, most participants in the stock market do not have such a number of shares to have an influence on the development of a giant company.
However, even a modest number of shares enables you to make money, for example, due to fluctuations in securities prices and exchange rates. And one more thing: it is important for a novice investor to understand that, as a rule, you shouldn’t expect fast payouts in the stock trading process. You have to be prepared to wait at least six months, or, more realistically, – a year or more.
It is important for an investor, either himself or with the help of a broker, to choose a strategy and a concept. An example of a strategy would be “buy and hold.” You have bought stocks by investing $1,000, say, for 55 years at 20% per annum (this is the average return on the stock market). So, in 3 years the income will be approximately $1,700, in 20 years – about 38,000, in 55 – close to 9,100,500. Is it possible to make money sooner? Of course! But it depends on luck. By the way, in order to make good money, you don’t have to buy shares, of, say, Apple, IBM or General Motors. These companies are now worth billions of dollars. And just imagine: what do they need to do to double the price, that is, so that their shares jump substantially in price, which means that you would make a big profit?
As a rule, shares of not-so-famous world companies give maximum profit. It is believed that the best company to invest in is one in which the stock is currently in a recession stage and shares are cheap. Of course, it is important to estimate the liquidity of the enterprise: so that the company whose shares you decide to buy has potential for development, that means that after a while its securities will rise in price and you can sell them with profit. At the same time, if you buy shares not for trading, but for getting regular dividends, then you need to choose more established and predictable companies.
The brave are lucky, but the careful are even luckier
It is important to weigh everything and clearly understand: what exactly do you need the stocks for. Are you able to do this yourself – have you done the research? Sure? Then go ahead. And if you are not sure, then it is better to get a consultant and trade through brokers. Usually, skills are developed over the years: you will learn to choose the right moment to buy and sell shares on the stock exchange.
Sometimes a stroke of luck happens: stocks bought by a beginner “for good luck” rise in price by almost 300% within a few days. If the person invested a large sum in securities, then he receives an even larger one. But in the world of trading on the stock exchange, it is believed that the path of a successful investor begins with the smallest investments and, of course, low profit. And this is normal. A novice investor can then easily understand the principle of investing in securities and trading on the stock exchange, and only then, when he will stand firmly on his feet, he can take bolder moves that lead to victories in a complex but exciting financial world.