How to Invest in Stocks: A Beginner's Guide

If you are contemplating the idea of investing in stocks, you should know that you will be part of the 15% of Americans who have bought individual stocks, although there are some things that you should take into account to protect your money and achieve a return on investment in the short, medium and long term. On average, people invest about $10,000 in stocks, although this figure can go up to $135,000, depending on the type of income the investor receives. For beginners, this process can be somewhat complex, but not impossible: Learn the steps to follow to invest in stocks!

Choose your strategy

Investing in stocks is a decision that should be based on information, but also on how much interest you have in learning how the stock market works. For some people, it is preferable to do their own research and analyze the numbers carefully, which leads them to make an active investment, which although presents more risks, also carries greater potential benefits. For those who do not have the time or the desire to learn these investment processes, it is best to make a passive investment, in which the return on investment is moderate but there is a greater possibility of predicting the results.

Learn about stock options

There are different ways to invest in stocks. On the one hand, it is possible to find individual stocks, although this will only work if the investor has the time to analyze their options and be aware of the changes that occur each quarter. Another option is index funds. In this case experts recommend passive management of stocks, especially those in the S & P 500 index, which offer an investment return of approximately 10%, which helps increase long-term profits.

Define the amount of money you are going to invest

One of the most important steps to follow is to always keep in mind that there may be periods of fluctuation. For example, 2020 represented losses of up to 40%, although the market recovered in just a few months. Therefore, it is estimated that an ideal amount to invest is 10% to 20% of your net income, whether in stocks, bonds or other assets that fit your short-term projections.

Select asset allocation

Volatile stocks concept with dice with arrows along with percentage sign — Shutterstock

Although it sounds tempting to invest a large amount of money, it is best for beginning investors to start cautiously. You should never invest capital that can serve as an emergency fund, money that you have saved to buy real estate, or money destined to cover the cost of a product or service that is necessary for you or your family. As for the ideal amounts to invest in stocks, these depend entirely on your income. For experts in buying stock, the most advisable thing is to allocate 70% of the money for investments in shares.

Compare fees and commissions

Currently most of the investments made on virtual platforms do not charge commissions for the transactions made. In that sense, you’ll find that all of your options are similar, at least in terms of cost, but not necessarily in terms of practicality. One way to familiarize yourself with the platform you have to use is by entering the site and verifying that it has tools so that little by little you can learn more about buying shares. In addition, accessibility and practicality should be decisive in choosing a brokerage house.

Buy your shares

To buy shares, you will need to open a brokerage account, a process that does not require much time and that will ask you for information such as your social security number, statement of assets that you want to transfer to your account and form of specific functions. To ensure a successful investment, avoid buying low-value stocks and those with high volatility, and always enter into transactions with an understanding of the stock’s terms, fluctuations, and potential performance.

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