Being readers of this blog, most of you will know stock markets are great for a long term investment. It helps build wealth by capital appreciation.
A lot has been spoken about the power of compounding and its impact on wealth. But in all these conversations, there’s something that hasn’t been spoken as much. Read on to find out how.
Stock market investment is one of the most advisable ways to exponentially increase your money without putting in too much labor. It is a passive income that can give ten folds of the investment you started – when you know how to do it right.
Most people are afraid of learning the know-how of the stock market. They do not want to go into this venture because the majority have the notion that investing in the stock market is only for those people who already have millions. Others believe that this may only be for those people who have obtained a financial education.
How to invest in the stock market for beginners
These ideas are far from the truth. Anyone can start investing in the stock market by knowing the basics of the trade.
Be passionate about saving
One of the ideas that must be debunked when it comes to investing, is the belief that the stock market is only for the rich. There are many investors who have started with a small capital, and yet has ended up with ten times more of it. For this reason, it is important then that you put away money for saving so you can start investing.
Of course, one cannot give what he does not have. Investing requires capital and you can obtain such through saving. There plenty of ways for you to save money and all it just really takes is the discipline to stick to it.
You can maximize today’s highly-advanced technology by downloading mobile applications that help you manage your finances and track down your expenses. Find your spending patterns and change habits that lead to unnecessary expenses.
You can also ask your bank to automatically deduct an amount from your account so you can have a digital piggy bank. Nonetheless, you can also opt for the traditional way of setting aside a small amount from $5 to $10 a week.
Whatever you prefer to do, just start saving up.
Balance the high-risk, high-reward idea
However advisable and legitimate investment in the stock market may be, it is also is a high-risk business. The stock market is volatile and one fulltime investment may go down the drain in one bad-market day. That is why it is important that when you want to into this system, you must be equipped with the right knowledge.
The risk will always be there but with the right understanding of the market, you will be able to strategize accordingly.
Take time to find the right companies
Because we live in a digital age, there are many listings available that you can find online for some of the best companies to invest in. In choosing which stock to invest in, the basic information that you must look for is the following:
- Revenue growth – The total amount of sales of a company for a certain period
- Dividend yield – The percentage from the stock’s value that you, as an investor, will be repaid to
- Price to earnings ratio –On the other hand, you could also try to understand and observe the demand for the products these companies sell. Although it is not a hard-fast rule, it investing would certainly be more fun when you know something about the company you are investing in.
It is wiser to choose which of those companies you personally know because you would understand how a customer feels about the product or services they offer.
For a better understanding, you can follow these simple steps:
- Jot down the top three companies of your choosing
- Understand the right valuation of the stock market for these companies.
- Research their financial statements.
- Lastly, try to ask yourself whether you will be willing to pour in your hard-earned money with the kind of narrative that these companies are sharing.
If your budget is tight, you can also try to explore the option of investing through your own employer. Some companies allow their employers to own stocks. You may ask the company to deduct a portion of your salary to be invested. In this manner, you are able to save up a portion of your income and have it doubled or tripled by the time you retire from the company.
Be Objective
Understand how the majority of the customer feels about the company and not necessarily how you think about it. You may like a particular company but if the financial statements share a not so attractive flow, you must not immediately invest in it.
You must also look at the price for each stock. A cheaper stock market does not equate to a good investment and an expensive stock market price may not be a bad investment.
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Consider expert opinion
As a beginner in this investment venture, reinventing the wheel is not the goal but rather learning first how the wheel runs.
Therefore, we must consider advice from experts. We may hesitate to consult experts thinking it may be expensive but for beginners, there are ways to gather advice that may cost less. The internet contains a plethora of knowledge and you might need to take down notes. Maximize the internet and do a little research.
Many finance companies provide an algorithm-based market prediction that will keep you informed about the behavior of the market you are investing in. These digital platforms will be able to provide you empirical data updates that will help you make a more strategic decision in buying and selling stocks.
Nonetheless, since you are starting with a small amount, there are free platforms that you can take advantage of. If you are a visual learner, YouTube tutorials might be best for you. There are also websites that provide infographics that talk about investment plans. There are podcasts in Spotify, documentaries in Netflix that shares insights about investments.
Write down expert advises and find common ground in their lessons. More often than not, certain advises tend to be repeated. You must capture this repeated advice and write them down. There may also be contradicting advises but reading more and more about the investment you may be able to direct yourselves from which advise you will be willing to take.
Timing is Everything
Know when to sell and when to buy. Some people have a tendency to keep this passive income dormant. Though on the onset this may seem like the less risky option, on the over-all, it is imperative to sell. If you keep it passive, chances are, you may lose the chance of multiplying your investment.
For us consumers, we have this thinking that prices on discount sales may give us a good deal. However, in the stock market, we must be cautious and not immediately buy. We must consider everything we have learned so far and try to feel if it is advantageous to buy at the moment.
We equip ourselves with the right tools in order to make the right investments. Study the financial flow and the financial feel and be objective. Always following cheaper stocks may lead us to companies on the verge of going bankrupt. But like the volatile market that it is, there are also wise decisions in buying stocks despite the pessimism in the market.
A decade ago, a world-wide market crash led investors to be more hesitant in shelling out money. Yet in retrospect, it would have been the best opportunity to buy stocks as years later, the world’s economy was able to bounce back and those who were able to purchase stock at that time got their investments double, tripled and even quadrupled.
Have more than one companies to invest
As the common saying goes, “don’t put all your eggs in one basket”. This means you do not have to invest all your money in only one company. One of the common practices in the industry is saving the profits from your first investment to purchase other companies’ stocks. This helps reduce costs and at the same time, increase the possible profit that you can gain.
Have a list of your top 3 or top 5 or even top 10 companies to invest in so that you can observe them occasionally and invest in the right one when you have enough capital.
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Consider Investing in Dividend Stocks
Dividends are a great way to build your wealth with liquidity.
What are Dividends?
Dividends are cash given out to the shareholders from the excess profits made by the company as a token of their trust in the company and to stay invested.
Dividends are measured as a percentage of the profits and are paid per share. So for example, if dividends of S$0.30 cents is announced. It’s for one share.
So if you have 100 shares, you get dividends of S$30.
Why are Dividends an important measure?
Dividends immediately let you know the financial health of a company. When a company has excess cash to dole out as dividends then they are in the pink of health.
- Consistent dividends are a sign of consistent profitability.
Dividends are always paid out of the profits. If a company isn’t profitable, then dividends won’t be paid out. So receiving dividends from a company means the company is doing more than well.
- Dividends are a sign that the company is not cash strapped.
Cash flow is the major factor for a business. There should be enough cash generated by the business to keep operations running. At some point of a time, a business will have to stop taking external funding and needs to generate cash from the business. When a business gives out dividends then, it’s a sign that their cash flow is healthy and they have enough cash to run the business.
- Dividends are also a sign that the company cares about it’s investors.
Apple for a long time did not give out dividends(Although they had billions of dollars in cash) and a lot of people considered that as a company not caring about it’s investors.
Investors place a trust on a company and invest and when a company gives out dividends, it shows that they care about the investors and is also a sign that they won’t do anything drastic that will affect the stock price of the company.
It’s more likely, that a dividend paying company has a consistent market rate that doesn’t fluctuate too much.
Benefits of Dividends as an Investor
Liquidity
Generally your stock market investments are liquid. But if your position is at a loss, then you don’t want to sell. Dividend is pure cash transferred to your account every once in a while.
If you have been invested for decades, then you can make thousands of dollars in dividends.
Earn back your capital
When you invest, there’s cash outflow. And you need to earn your capital back. How it’s done in the stock markets is through capital appreciation. Another way to earn your capital back is through dividends that is paid out regularly.
Have the proper mindset in Investing
Market predictors are always helpful but these predictions may not always be accurate. The erratic behavior of the market may always give you that feeling that you may lose all your savings. Having the proper mindset is your strongest asset.
Know that the market is a battle. You need to heighten your survival instinct. Markets will go down, companies will fail and you must not let this affect you. Maintain an evolving mindset by learning from the mistakes of buying or selling at the wrong time and keeping these lessons in order to adapt and continue.
The market is indeed unpredictable but if you have the right tools, the right disposition, and the right mindset you will be prepared for any battle or maybe, at some point in time, prepared for war.