A Beginners Guide To Investing In Stocks
Are you thinking of getting into stock investment? Do you have a pot of savings that you wish to invest but you’re still on the fence about how best to invest it? Going into the world of stock investing can be daunting. There is a lot of information to take in, and never-ending research is required. However, stocks can be a great way to set yourself up for the future and provide a side hustle alongside your day job. Keep reading to learn more.
Why Invest In Stocks?
There are many reasons it can be a good idea to invest in stocks. You can do it to earn some extra income alongside your career, giving you more disposable income. However, the most common reason for investing in stocks is to provide future comfort or inheritance for children. If you make wise investments and make use of compound interest, the money you invest now could bring you big returns years down the line. You can use this to help you enjoy your retirement or to pass it on to your children to help them get set up in life.
The Benefits Of Investing In Stocks Over Saving
When you place all your money in savings, you’re missing out on the potential to grow your money, and make it work for you. When money is sat in savings, you only earn simple interest, which currently has low rates. Although it’s good to invest some of your savings in investments, you should always have some savings kept in your savings account so you have a safety net to fall back on financially. Stocks are a great way to make the most of having money set aside, they are volatile and always possess some level of risk. Therefore, it’s irresponsible to use up all of your savings in stock investments that will never have a 100% guarantee of security.
Passive Income Explained
We’ve spoken about stocks being a good form of passive income, but what does that mean? Passive income is a form of income that doesn’t require a high level of work to earn it. Due to this, it can be done alongside an existing job, and provide an extra way to gain money to be used however you wish. Depending on how involved with your investment portfolio you want to be, there is a certain level of work required on your part. You will need to learn about what kind of stocks you’re going to invest in and monitor their fluctuations. You’ll also have to be constantly researching the stock market and the economy. This is especially true if you choose to invest in global funds (something we will talk about in more depth later in the post).
Compound interest is earned when investing over long periods. The more interest you earn on your investments the more compound interest you will build up as it’s essentially interest on interest. Compound interest is one of the main reasons it’s a good idea to invest in stocks for several years or even decades. If the stock you’ve invested in rises in value, it will also increase the interest, so you will earn more compound interest.
How Can Stocks Provide Benefits In Your Future?
You should always be putting money into a private pension or savings for when you retire so you have a safe and ensured retirement fund. However, investing is also a great way to make sure you can have a comfortable retirement. Unlike pensions and savings, investments allow you to increase the money you put in, rather than it remaining stagnant. Just make sure you conduct your research and balance your risks so that you don’t end up wasting hard-earned money on investments that could see huge losses.
Working Out How You Want To Invest
Before deciding how to invest in stocks, you should decide what kind of investor you want to be. Set aside certain amounts of money you’re comfortable with using to invest and stick to it. Create a budget plan and decide how you’ll split it between stocks in your portfolio. Learn about what kinds of stocks you want to invest in and how much you’re willing to put into them. Research your chosen stocks and their current performance on the stock market. Do you want to be a short-term, higher risk investor? Or do you prefer the idea of long-term, lower-risk investments? Perhaps speak to people you know who invest in the stock market themselves and ask for any advice they can offer. Just bear in mind that the way other people choose to invest doesn’t have to be the way you do it yourself. You need to find what works best for you and tailor your portfolio accordingly.
How Much Money Do You Need To Start Investing?
Many people believe investing in stocks is only for the rich, but most stocks only require a small initial investment for you to get started. It’s possible to start investing with as little as $1, but this will vary greatly depending on the company or the fund you’re investing in. if you’re building up a sizable portfolio, there will be different priorities for where you choose to invest your money and you’ll find that certain stocks work better for you than others. Investing is something you learn more about as you go along. As you gain more experience and knowledge, you’ll know where is best to put your money and where you might see better returns in the future.
A dividend is an excess profit a company you invest in makes. The board of the company can choose to put this excess profit back into building the company and investing elsewhere. However, they can also choose to give some of it out in the form of dividends. When a dividend is given out it is a small portion of the profits for shareholders that have invested in the company.
What Are The Different Kinds Of Dividends?
There are a few different forms that dividends can take. So if dividends appeal to you, conduct your research into which kind you would use. We’ve listed the most common ones below.
Cash dividends are decided by the board of a company, depending on the profit made. Depending on whether the shareholders are common or preferred shareholders, the dividends will be paid out accordingly and may vary in the date and amount given.
As you’ve probably guessed- these types of dividends are given out when a company is liquidating. They can come in the form of cash, property or other assets, and are portioned out to shareholders.
If a company wishes to use excess cash profits to reinvest elsewhere rather than into dividends, they can choose to give out dividends in the form of stocks instead. The benefit of doing this is that you’re reinvesting in the stocks of the same company, so you’ll be building up compound interest and a potentially greater return on your initial investment.
Mutual Funds Explained
Mutual funds are a way of investing in which a company will be responsible for handling your investing and where they go. Your money will be combined with money from other investors choosing to use the mutual fund. If you don’t wish to be very involved in making investments yourself and monitoring the stock market, this could be the right choice for you.
What Are The Different Kinds Of Mutual Funds?
There are different kinds of mutual funds to choose from, so it’s worth taking the time to consider which one would suit you best. Have a look at some of the following options below.
This type of mutual fund adapts to the current financial market, making investments according to what stocks are performing well.
If you’re interested in seeing immediate payback for the money you invest, fixed-income funds can be an extra way to earn money as they are paid out regularly.
Balanced funds are a mixture between equity funds and fixed-income funds, so you can be building up interest and future returns, as well as receiving regular income from investments.
As the name suggests, this involves investing in stocks internationally rather than just in your own country. This kind of fund can come with higher risk as you may not be able to predict the financial market of another country as easily as your own.
The Importance Of Diversifying Your Investment Portfolio
It’s important to make sure your diversity your stock investment portfolio by investing in different kinds of stocks. You can still invest in things that interest you or things you have a good knowledge and understanding of, but you could also consider variation too. if you’re unsure of a certain kind of stock, you can seek advice from those that know more about it. Or simply take the time to conduct your own research. Diversification is important so that should a certain kind of stock lower significantly in value, you’ve got the other kinds of stock to fall back on as they won’t have been affected.