Getting started in investing in stocks doesn’t have to be difficult. Just clarify three things. These are not complicated matters, just basic concepts.
All beginnings are complicated. The same is true for investing in stocks. Unfortunately, everything can be divided into a few easy points that you can ask before you buy your first share.
Why invest in stocks?
Why buy stocks and invest in them is the first question you should ask yourself. There are a number of financial products on the market in which you can invest or save your money. In addition to shares, there are also mutual funds, but also term deposits or, for example, mortgage bonds.
The advantage of shares is that you participate in the financial results of companies that you own through shares. In addition, shares tend to rise by at least inflation, ie their value increases over time. The second advantage is the dividends that joint-stock companies pay to their shareholders.
On the contrary, the disadvantages of investing are mainly the change in value over time, especially in a negative way. The value of the shares bought today may fall by a fifth tomorrow and by another third the day after tomorrow. Or their value can skyrocket. Fluctuations in both directions – volatility – is common in investing. Are you ready enough? If so, you can move on to the next point.
Conservative or speculative investor?
There are two types of shareholders. One buys shares to appreciate the money stored in them and earn a regular dividend, the other bets on a drop or rise in price. However, the shares hold for a relatively short time.
The first type is a conservative shareholder. They want only one thing after their investments: the appreciation of financial resources. The shares hold for a relatively long time. Often for decades. They invest in such fields and companies that they know or are at least close to them.
On the contrary, a speculative investor bets on declines or increases in the value of shares. And all this in relatively short periods of time. This type of investment is characterized by high returns as well as large losses. Unfortunately, the latter is more common. Experienced matadors admit that gaining large sums of money by trading on the stock exchange is more of a coincidence and luck than the result of hard work and constant activity.
These two investors include a mixed type, which buys shares for dividends and sells them again after the decisive day, looking for another ideal investment.
Whether you are a conservative or speculative investor, you should ask yourself one last question and how often you will invest and in what volume.
How often and for how much?
If you have a larger package of money, the urge to spend all your finances on one large investment is offered. If you resist this feeling, you can achieve a better effect by buying securities on an ongoing basis. The advantage is that you will not enter the capital market at the most inopportune moment when prices will be at their maximum.
By gradually investing, you will average the final share price and, in the long run, you will buy shares cheaper than if you entered the market at the worst moment. Market timing is generally not recommended and is avoided by experienced investors.
For example, if you have enough money and time, you can buy stocks once a month. The final amount invested depends on your financial means. Rather than the amount of the regular amount, it is more important how your financial assets are diversified. If you have all the money in one type of asset, it may be time to move some of your funds elsewhere.