Investing in company stocks is nothing new or innovative in today’s day and age. But despite being centuries old, stock investing remains one of the most reliable ways to accumulate wealth over time. George Soros, Warren Buffett, Charlie Munger, and a myriad of other wealthy investors serve as a testament to the power of long-term investing.
But if it were anything but easy and simple, everyone would be successful in this endeavor. Here’s a beginner’s guide to effectively investing in the stock market.
Understanding What Stocks Are
The first step on how to start investing in stocks is to understand what a stock is and how it works. In a nutshell, a stock is a piece of a business. When you buy stock in company XYZ, for instance, you effectively own a fraction of company XYZ. Being a stock investor of a company entitles you to a portion of their assets and profits proportional to how much stock you hold in your portfolio.
You can buy and sell stocks on stock exchanges, such as the New York Stock Exchange. Before you assume any positions on the stock market, make sure you also understand the tax implications of investing. According to SoFi Invest, investors who hold their positions for a longer period of time stand to benefit from a tax standpoint.
Finding Your Niche
In the 2017 documentary “Becoming Warren Buffett”, the humble investor talks about finding a circle of companies that you are comfortable with. While successful investing involves some degree of diversification, an over-diversified account can also entail a higher level of risk.
While you’re starting out, it’s best to limit your buy-and-hold picks to a handful of companies whose operations and inner workings you fully understand. If you are fond of tech companies or fashion brands, for instance, stick to that niche first until you gain more market experience.
Putting Your First Buy Order
Where to invest is a common barrier to entry for most aspiring investors. Nowadays, investors have better access to broker tools and services that allow them to buy and sell stocks and other securities, like currencies and commodities.
Gone are the days when you’d have to phone in every buy and sell order to a broker who is physically on the trading floor. The process can take several hours to complete and can cost a good chunk of your available capital. Today, you can easily apply and get approved for an investment account online in a matter of hours.
Of all the tips you can follow, risk management is unarguably the most important. Keeping risk relatively lower than potential return is key to your survival as an investor. Risk management measures to learn about include using high-profitability technical and fundamental strategies, setting stop-loss and profit-target measures on every position, and setting appropriate position sizes. You can learn more about how to start investing in stocks at SoFi Invest.
Start your investing path the right way by gaining the fundamental knowledge needed to operate effectively within the stock market. While the aforementioned tips are a good starting point, check out SoFi Invest’s resources to make yourself a well-rounded investor.