Sept. 28, 2017 /Lydia Wanjiru/ -- According to a recent survey by bankrate.com, only 26% of Americans below 30 years are investing in stocks. Lack of financial knowledge was a topmost reason why most millennia’s are not investing in stocks besides lack of finances. Lack of information was another reason cutting across all age groups.
If you want to create real wealth then you should start investing. Investments are the avenues to a decent living. To achieve financial independence you should let your money work for you. Take calculated risks and remember the higher the risk the higher the returns and vice versa. Here are 5 simple steps to guide you on how to invest in the stock market:
1. Create an investment plan
An investor must have investment goals. For you to be able to make a good investment, you must be sure of the path to take and the destination you intend to reach. Different investments have different levels of risk. Choose the one that suits your risk tolerance. For some investments, it is possible to predict the outcome easily and others it is not. Investing styles and strategies may include:
- swing trader
A swing trader is a position where the trader holds a tradable asset for days in order to sell at a profit but it is shorter than buy-and-hold position but longer than a day trading position.
- value investing
A value investor has a notion that the market makes radical swifts following the announcement of the good or bad news. The investor buys the stock when the price is deflated and undervalued and sells at a profit at a later date when the price increase.
- growth investing
A growth investor invests in companies that indicate growth that is above average and their focus is capital appreciation.
2. Decide what to invest in
To invest you need to research and study the stock market well. Find as much information as possible on different stocks and the industry a specific stock is related to. Find out the liquidity and the price of the stocks. This will help you to estimate the total cost of your investment and estimate the possible returns. It will also help you to make an informed decision that will yield positive returns. Diversify by investing in a portfolio of bonds, mutual funds, small-cap stocks, large-cap stocks, penny stocks etc as it helps to mitigate the risks.
3. Open a brokerage account with a discount broker or an adviser
To be able to invest in stocks, you need to open a brokerage account. Opening a brokerage account allows you to buy and sell investments and stocks depending on the broker for example bonds, mutual funds, currency, forwards, futures, options, contracts etc. A brokerage account is subject to taxes unless it is for retirement. You also need to choose a good broker to help you with the investing. When choosing a broker, consider their minimum deposit requirements, charges low commissions and account fees, offers a wide selection of investments, has user-friendly tools of the trade and has a good support system.
4. Follow the performance of your portfolio
Track the market performance and the individual stock performance so that you are able to determine when is the best time to buy and to sell a particular stock. You can use NASDAQ indices, beta, stock metrics, price and volume to measure how a particular stock is performing. To gauge the global performance you can use a global market index like the S&P Global100 or MSCI World. You can also opt for an automatic portfolio tracking that is usually offered by the brokerage.
5. Review and adjust your portfolio
There are forces that can alter your portfolio like market shifts, strategy shifts by companies, appointments of new company management among others. Check-up your portfolio performance every once in a while to ensure that you are still on track towards your goals. This can be semi-annually or more frequently and helps you to make any relevant adjustments in your strategy.This will also help you to assess the overall performance to plan your future, evaluate your asset allocation and review your individual holdings.
Investing is simply the power of the time value of money and can lead to compounding benefits. Invest as soon as you are able to so as to build wealth and achieve financial freedom.