Step by step explanation on how to invest
Everyone is well aware that the stock market is one of the most popular ways to generate high income. However, what keeps most people away from the stock market is the wrong misconception that the stock market is complicated. Beginners find it very difficult to invest in stock as they do not know the process correctly. Thus, they find it to be time-consuming, risky, and complicated.
Don’t worry! In this article, you will find step by step detailed information on how to invest in the stock market. For this, register with Oil Profit.
Step 1: Decide the process of investing in the stock
There are various ways to invest in a stock. Choose between the options you find the best and how you would like to choose the stocks. This decision is dependent upon your financial position, your debt, and your income. The specific considerations include:
- Financial status: Your financial condition must be such that you can invest some amount in ventures.
- Stability in the family: See if there is a condition of welcoming a new member in the family, you may require utilizing all of your income. This condition is not suitable for investing. The family situation should be stable for you to invest.
- Security in income: Make sure you have a fixed income and a secured job so that you can freely think about investment.
- Debt: If you have some obligations from the past, you may want to pay them before investing your money somewhere else.
Step 2: Keep a backup
Before you put all your money at stake, it is wise to put some of it away as a backup. The amount you are setting aside should be equal to the amount you require for three months as your living expense. The money you put as backup is mainly for two reasons. One is to avoid panic in case the investment graph does not go as planned. Second, it serves as an emergency fund in a financial crisis.
Step 3: Choose an investing account
If you invest in the stock market, you need an investment account. This applies for every investor. For the hand-on type category, the account you need to consider is a brokerage account. You can also open an account in Robo-adviser account for a more sensible option.
Brokerage account: Having a brokerage account allows you to buy stock, funds, and other investment option most quickly and cheaply. A broker helps you open a retirement account (IRA) or an open taxable brokerage account for your backup money or cash reserve.
Robo-adviser account: In this account, you enjoy the advantage of stock investing. Moreover you don’t have to do the legwork for managing the investment. Here the advisors offer complete investment management. The company takes information about your investing goal and makes a portfolio according to your aim.
Step 4: Decide between Mutual fund or Exchange Traded Funds (ETFs)
If you are a first-time investor, it is better to start with mutual funds and ETFs than any other investment option. These funds are managed by professionals, thus eliminating the confusion of selecting one from so many options. However, for getting such an investment, you need to do two things.
First, you have to open an account in one of the commission-free ETF trading apps. Second, you have to decide the number of funds you want to invest. After these two steps, you are free to lead on rest of your life tension free.
In addition to the above, there is one more benefit of mutual funds that you don’t have to worry about diversification. Since every fund holds a variety of stocks, diversification is a built-in benefit of the fund.
Step 5: Set a budget for your investment
There are basically two questions that you must ask yourself:
- How much money I should keep as a starting investment?
The amount of money needed to buy a stock usually depends on how expensive the shares are. If you want to invest in a mutual fund and have a small starting budget, then ETF is the best option.
- How much should I invest generally?
If you are planning to invest in funds, you can invest a large portion of your portfolio in stock funds. It acts even more fruitful if you are planning it for a long term basis. For instance, if you are above 30 and investing for your retirement, you can invest about 80% of your portfolio money in stock funds. However, you should not invest the whole; always keep a small portion away.
Step 6: Take steps gradually
When you finally think you know how to invest in the stock, be sure to take steps gradually and carefully. No one wants a dollar-cost averaging feature in their invested stock. Thus, you have to develop your method on a gradual basis.
Since you have already understood and have a grip over mutual funds and ETFs, you can now begin investing in stocks. However, make sure you are investing in one stock at a time while side by side building your portfolio. This step ensures the prevention of overexposure to a single stock.
Step 7: Give attention to diversification
If you have followed the above steps, you have already taken a considerable step towards diversification. You have your cash reserve, investment account, retirement plan, stock in mutual funds, and EFTs, which is more than enough.
On top of it, if you add the individual stock, it will further move you into the diversification of your fund and cash holdings. But make sure to spread your capital among various equity shares while preparing your portfolio. It gives a balance between growth and income.
You are ready for investing
Remember, the more time you give your investment, the more it will grow. So, it’s better to start investing earlier and let it grow for a more extended period. Investors who have invested earlier usually enjoy a better overall return on their investment than others.
You just need to follow the above steps to make sure you do not make any mistakes in your investment foundation. Remember, as the article suggests, it is a step by step guide and not a destination. So, take your steps gradually and carefully.