Beginners Guide to Investing in Stocks: 10 Basic Principles

09-01-2017 | Adriana |

Investing in Stocks 10 Basic PrinciplesInvesting in stocks is most definitely a significant financial decision. Some make good investments and win big, others lose their life savings in a matter of seconds.

The stock market shouldn’t frighten you though. Investing in stocks is not just for the experts, everyone was a beginner at some point.

Learning about the stock market can be overwhelming, but it’s not impossible!

Think of learning about investing as a investment in your financial future. You don’t need to catch up with anyone, you don’t have a deadline to build up your portfolio, just take it one step at a time and learn something new everyday!

Start the New Year with your best foot forward!

Here are 10 basic principles to get your started on building your very own investment portfolio:

1. Read stock trading books

Before you do anything, you should definitely get your hands on some stock trading books!

It’s best that you start with investing for beginners: learn about dividends, building a portfolio from scratch, get familiar with the risks.

You could start by reading Benjamin Graham or William O’Neil, maybe give “Stock Investing For Dummies” a chance.

When you gain some insight on how the stock market actually works, move on to more serious books. The internet can be your friend as well, there’s lots to learn from the online world!

Don’t stop here though. Investing means juggling your own money so you need to always learn, always know what to do next.

2. Make an investment plan and set financial goals

Always have an investment plan, that’s how any financial decision should be made!

What are your expectations? How much can you afford to invest?

If you already know some basic principles of how the stock market works, you should already know this isn’t a get rich quick method.

The key to successful investing in stocks is time and strategy. So, make a plan and see how you should invest your money in order to really gain financial independence one day.

3. Buy safe stocks

Investing in safe stocks is basically common sense, if you think about it.

There’s the myth that stock investments are like playing the roulette. While in many cases this is true, you can still find plenty of safe stocks to invest in.

Safe stocks, even though not 100% safe, are those that are unlikely to go belly-up in the next few years. Take Coca Cola or Procter&Gamble for instance, so far they kept increasing their dividends each year.

So, make sure most of your investing is in safe stocks. It’s less risky for beginners.

4. Know your risks as a beginner

Since it’s just been brought up, let’s talk about investment risks.

The biggest fear investors are facing is losing money. To avoid that, the best advice is to just stay way from risky stock markets.

One good example of a risky stick market is the technology industry. Things move so fast nowadays, tech stocks tend to be less safe than they used to be.

5. Invest long term

Investing is indeed a numbers game, but it has specific rules and, given enough time, you could make a nice profit. After a few years, of course.

This is where your plan comes into action. Hopefully, you didn’t plan on getting rich in only 12 months.

Successful investing takes years. Average returns are about 10% per year, maybe 12%. If you choose to play it safe, don’t rely on cashing in the big bucks too soon. Wait a few years and you could have a nice surprise in your bank account.

6. Get paid each month (or quarter) in dividends

Some companies will pay you a small amount each month or every few months for the shares you bo ught.

It’s their way of saying “Thank you, buy again” while also providing you with a predictable income stream, which makes it easier for you to plan your budget.

Of course, don’t go buying dividend stock just because they pay you back quickly. Do your research and invest in companies that are worth it.

7. Reinvest the dividends

Instead of cashing in the surplus, why not reinvest it? You could easily increase the value of your investment portfolio by buying more stocks.

It’s a very smart move. When you reinvest, you buy more shares, thus multiply your income. You could be able to achieve your financial goals years faster than expected.

8. Buy when others are selling

The good thing about having a plan is that you already know a thing or two about the stock market, since you managed to set some realistic goals.

Panic sells are very common among investors. Usually, when the market is predicted to be very bad, people panic so they sell their stocks immediately.

However, as it often happens, the market can actually flourish later on, which means that if you’re quick and smart, you could buy stock when everyone is selling (at a very low price) and keep the profit when the market regains consciousness.

9. Learn how to read stock market reports

Another basic principle is learning how to read stock market reports.

Charts, earning reports, statistics, these are all a big help, since you need to know what to expect from the company you want to invest in.

10. Invest what you can afford to lose

Since this is a beginners guide, here’s a last tip you should definitely consider following: if you’ve never invested in stocks before, start by investing money you can afford to lose.

Don’t take the advice as negative mojo, but as a safe precaution.

Beginner investors surely have some doubts about whether or not they’re investing wisely. To avoid any emotional financial decision (like, selling out of panic), start by investing money you can afford to lose.

It’s a great way to get started and feel your money is safe. This way, you’ll feel more confident about the next investment move and won’t be prone to acting out of fear.

Do you have any other tips for beginners to add? What worked for you?

(Read more about other investing tips for beginners, 10 investing tips in today’s markets and Warren Buffett’s 10 Biggest Rules for Investing Success )

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