How to Invest as a Newbie?

Making money through business is fascinating. You earn by selling products or services. But it can be confusing where to start, especially if you’re starting as a beginner. However, some services can help you get to where you want to be fast. When you want to move ahead, you can work with a business broker and make money through that.

Investing is a skill that everyone must learn. It can be for your retirement plan or for your kids’ tuition. The fundamentals are pretty simple—you have to achieve more gains with less cost, and there are multiple ways to do that.

Say you have $3,000 as savings and want to do something with it. Or you save up $25 a month and want to make that work. You can gain returns with both of these. Students and people in business have equal chances of gaining and similar risks of loss.

Therefore, you must start understanding how to invest in stocks. Like everything, you should start by understanding yourself.

What Kind of Investor Are You?

Ideally, there are two types of investors—those who want to manage everything regarding their investment and those who want to invest and forget. Another comparison can be by the amount. Some prefer investing a lump sum, while some prefer investing a small sum of money each month.

You can try to understand your method of investing by figuring out your goals. If you’re 20 today and want to buy a house at 30, you’ll need handsome returns in 10 years. If you’re someone who likes to take out profit whenever you see it, things will be different for you.

It boils down to how much risk you’re willing to take. Yes, there will be risks. No broker in the world can cut down the risk percentage to zero.

What Are Shares?

As the name suggests, a share is a part of the company’s total value that you own. When you buy shares, you buy a part of the company’s ownership. There are two ways that you make money through shares:

  1. Through dividends: Companies often send out equally distributed dividends among the shareholders. Suppose you bought 1% of shares of a profitable company like Amazon. They decide to give out a dividend of $1 million. It will be split among all the company’s shareholders, and you’ll make money.
  2.  By selling the shares: When you hold shares for a long time, there are bound to be capital gains. Apple’s shares were trading for $9 in 2010. In 2021, they sell for $159. So if you had bought 10 shares in Apple for $90, you’ll have made $11,500. If you choose to sell these shares, you’ll earn $11,410. Sounds amazing, right? But then, some companies also go into loss and the whole process gets reversed.

stock market

How Do You Buy Shares?

It’s not like online shopping. You don’t just go to a company website and buy the shares. You have to contact a broker and tell him about the company and the number of shares you want to buy. He takes care of your shares and handles things like buying and selling for you.

Luckily, it’s 2021, and there is an ocean of online brokers and apps that handle your stock affairs. The only problem is, there are different brokers for different companies, and they all have to follow tons of strict laws.

You can also open an investment account through your bank, where they’ll directly invest money from your bank account. But the trend has shifted to online brokers as it’s more convenient, and everybody has their phones with them.

How Do You Decide What Stocks to Buy?

Choosing a share equates to choosing your favorite company, which you can trust with your money. It’s about having confidence that it will be profitable in the years to come. It’s like predicting the future, and that’s why it’s a bad idea.

There’s nothing wrong with having a favorite. If you love it so much, you can put some money in but leave the rest for Index funds.

What About Index Funds?

Imagine there’s a big bowl where everyone pools their money to create a huge sum. This bowl of money is called a fund. Many investors create funds of a substantially large amount to invest securely. This fund has a manager who handles the money and splits it to invest it in different stocks. This person is called the fund manager.

When these companies gain capital, the fund incurs a profit. That profit is divided among all the contributors in the fund. This method is safe as even if some companies suffer loss, you don’t lose all your investment as some will profit.

The index fund has a collection of top-performing companies in a country. It invests in all these companies to gain the best results.

To conclude, you can invest in index funds if you’re just starting out. The stock market is not as complex as people estimate. But it’s not easy too. The gist is, you can get your way with it with basic knowledge of the game. Nobody wants to keep working forever. And to achieve financial freedom, you must invest your money to attain returns.

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