Still confused about how to start investing in the stock market?
It might be quite intimidating.
But if the initial baby steps which you make are on the right track, you can learn quickly and reduce your mistakes.
By this way, you can increase the odds of success at your early stages in investing.
Here are some of the steps which you can follow if you don’t know how to start investing in the stock market.
[Step-1] Understanding Terms and Jargons:
Getting into investing means getting into the world of Business and finance. It is full of technical terms and jargons. At first, it looks scary, but if you boil down the basics it is actually simple common notations of day to day income and expenses of businesses, termed depending on their applications.
Believe me, it is so much understandable. My undergrad education has nothing to do with finance, but I was able to understand the jargons and terms within a matter of weeks.
Understanding those jargons and terms is the first and foremost when it comes to investing in stock market. With this knowledge, you can easily start understanding the language of business.
It is inter relatable. So if you get to know some of the fundamental terms and concepts the rest you can learn easily.
[Step 2] Read some basics:
Reading books will not be icing on a cake for most of us. In fact, reading more than 15 minutes will be like sleeping pills if you are not used to it as a habit.
But there are vicious readers who always read, learn and get so much into their minds. Also, their wisdom speaks their worth in real world through their investing habits.
Successful investors are avid readers. They spend most of their time reading.
You don’t need to read tons of books with a large bookshelf. Even a single chapter in a book can change your life and can have a greater impact on your investing habits.
Once you decide to start reading books to learn more about investing, you’ll get used to it and a thirst for knowledge develops in you.
You have so many options in front of you.
Starting from self-help books, autobiographies, investing strategies, personal finance to more in-depth investment valuation books.
You can make use of some of the excellent online sources like blogs and podcasts.
There are so many of investing books to start with. Basics are common whatever be the strategy you wish to adapt. Once you start developing your investing style, you can then pick and read books based on your requirements.
It is not absolutely necessary to read a hard copy. You can read soft copies or can listen to audiobooks. It depends on individual choices.
I recommend hardcopy. Because we are so much filled with digital devices straining our eyes. Hardcopy gives a personal touch and is friendly to our eyes.
[Step-3] When to open an account:
I should have talked about opening an account after the introduction. But I felt it doesn’t make any sense if you do it initially without knowing some basics.
Opening a brokerage account can be done within hours, but that will sometimes place a check on our behavior.
You might have heard about the Marshmallow experiment. It actually works like that.
In Investing, initial enthusiasm and Lack of self-control may sometimes lead to financial disaster.
Opening a brokerage account and resisting ourselves from acting upon will be difficult.
Without a proper understanding of investing, how money works and how your behavior affects your investing pattern, it will be worthless to open an account initially.
It is ok if you start an account and don’t place any orders before knowing basics.
If you start trading before knowing basics, then the flavor of money make you repeat and it will be a roller coaster ride.
Before realizing that you are actually speculating, your portfolio will be wiped off.
So on a safer note better know some basics before getting into investing in stocks.
If you want to bypass this step, better do it under the guidance of a qualified financial advisor.
So whether you start investing or not, it is always advisable to get some basic knowledge of the concepts of investing and how to start investing, before opening an account.
[Step-4] Choosing the right broker:
Choosing the right brokerage account is the most important decision that you’ll be making. Because it will have a greater impact on your returns and usability. A good broker with minimal transaction charges will save you a lot of money.
There are two kinds of brokerage account
- Full-service broker (Investing account).
- Discount broker (Trading account).
A little bit of initial knowledge will also be helpful for you in selecting one.
It usually requires few documentations depending upon the country you wish to open an account.
After you open your brokerage account, get to know your login dashboard.
This is the place through which you invest your hard-earned money. So it is better to know how to use your account. What are the options available, how to place a buy or a sell order, How to track your investment portfolio, etc?
Most of the brokerage service providers have demo built into their login dashboard.
If you find it difficult, call your broker and ask for a live in-depth demo of your account.
This way you can make yourself comfortable before placing an order without messing up.
[Step-5] Computer or a smartphone with the internet:
A good computer or a smartphone with a decent internet connection is required to place buy or sell orders. You can do it through a voice call by contacting your operator if your broker offers such a service.
Fundamental analysis of stocks requires Excel knowledge for valuing companies. So knowing some basics in Excel will be helpful. You can use your own computer or a friend’s device for this.
You can perform the valuation on a rough paper or on the back of an envelope. It’s that simple. Making use of technology can make your process easy.
I hate working with numbers, so I use excel at times during valuation.
It helps in organizing the analysis process. It’s always better to save some time by automating.
You will be getting to read company annual reports, announcements, and quarterly statements, etc.
So better use a desktop or a laptop.
[Step-6] Start Saving:
Start setting apart some money every month for investing. Make it a regular habit.
Investing requires money in action. Skills alone don’t make you a successful investor. You need to start investing your money.
Allocate a percentage of your income regularly for investing, whatever be your commitments.
Higher the age lower will be your risk profile. So consider this and allocate funds.
A simple approach can be by subtracting your age from 100. Example: If you are 35 years, then you can allocate 65% (100-35) of your investible funds for stocks.
Personal Preferences can vary.
It requires strong discipline to develop and maintain a concrete investment portfolio. So, If possible automate your cash allocation to your investment account by contacting your banker.
[Step-7] How to Start Investing -Trial Phase:
By now you should be knowing something about investing with an excitement to act upon.
If everything goes fine, till now, you wouldn’t have invested in any company.
Now transfer a small portion of your savings into your brokerage account.
It is your trial money. It should be something which you should afford to lose. You cannot depend on it for near-term or emergency expenses.
For investing in stocks, a minimum of 500$ can be a good starting point.
Some of the brokerages have minimum amount requirements.
It can be anywhere from 100 to 1000 $ depending upon your brokerage service provider.
I advise a bare minimum of 500$. But don’t consider a too lesser amount, because transaction charges will wipe out your returns.
Remember, you are a beginner. Don’t start big. Once you get used to the process and start developing some basic skills in investing, you can increase the amount.
Initially, you can invest in liquid mutual funds and equity mutual funds instead of keeping your cash idle. It offers a better return than your savings account and you can redeem the units anytime.
You can redeem the amount to your investment account when you find a good undervalued company to invest.
Good companies are not always available at a cheaper valuation. Keeping some liquid cash in your investment account to time the opportunity is a good strategy.
Develop the habit of meditation. Whenever time permits try to remain calm and just think about anything apart from personal stuff. You will see a huge benefit of this in your investing journey.
If you have followed these steps, by now you know some basics of How to Start Investing in the Stock Market.
But it’s only a starting point.
From here on you’ll have to learn how to select companies to analyze and perform in-depth valuation analysis to find undervalued companies which are potential investments for good returns.
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