Do you want to learn how to invest in the stock market with little money? Do you need stock market investment tips and advice for beginners without losing your money? If you answered YES to any of the questions before, then i advice you read on.
Everyday, i get questions from people who are interested in becoming stock investors but they just don’t know how to go about it. Well, this article is a beginners’ guide to investing in the stock market. However, i think it is of utmost importance to point out that this article is in no way an investment advice, and it is definitely not a buy or sell signal. The aim of this article is to simply arm you with the fundamental knowledge you need, with respect to stock market investing. So if you are ready to learn, then let’s ride on.
What is the Stock Market and How Does it Work?
For investors wanting to participate in the stock market, it is essential to know what this investment is all about beforehand. The central knowledge to have in this venture is to know by heart how to invest in stocks for profit. This know-how may save them a great deal of risks.
When a company wants to expand but they lack the funding to do so, rather than getting a loan from the bank, they just sell shares of the company to potential investors. The stock market is where different companies sell their stocks or shares of the company to different buyers.
The stock market is propelled by stocks, also called shares or equities. Stocks are portions of a company that are sold to the public. This means that when investors buy stocks they own a very small percentage of the company they buy stocks from; for that reason, investors owning a company share are called shareholders. Stocks are the only commodity sold in the stock market, though stocks usually takes a lot of form.
Owning stocks can earn you money in one of two ways; either through dividends or through selling stocks that has appreciated in price. Dividends are portions of the profit of company that are given to the shareholders in return for their provision of money for the companies operating expenses. Earning through dividends is usually on a monthly, quarterly or annual basis.
An extremely simplified explanation of how stock trading/investing works is that you buy shares of a company at a low price, and when the price of the stocks rise, you sell them to another trader/investor. There are a lot of different reasons why stock prices rise and fall; but the most common cause of this fluctuation in price is due to the company’s performance and market sentiment.
Why You Should Start Investing in Stocks
One way to have a financially secured future after retirement is by investing in the stock market early on. Stocks have a proven track record when it comes to returns, easily outperforming other asset class such as bonds, FOREX, real estates, and mutual funds. With history as its witness, stocks may very well be the best performing asset class of all.
People buy stocks for different reasons. Some people buy them so that they can get a part of what the company earns, these are called dividends. This means that the more shares of stock a person has, the more money he will be getting from the company. Earning dividends are great, that is if you are lucky enough to buy them at a reasonable price. The most common way to make money in the stock market is by buying and selling the stocks for a profit (price appreciation or depreciation). This is known as investing for capital gains.
3 Ways to Make Money from the Stock Market
- Capital Gains (Buy low, sell high)
- Cashflow (Dividends and bonus)
- **Advanced trading / options** (Sell high, buy low)
The Bitter Truth about Stocks
As good as it may sound, though, investing in the stock market poses great risks. This type of investment is subject to periodic stock market crashes. Stocks or shares are very volatile in that they can easily lose their value should a company fail to cope up with the crashing of the market. Because of this, stocks can be an intimidating form of investment. Investors planning to invest in the stock market should learn all the knowledge about the stock market and the rudiments of investing, in order to avoid losing their money.
While it is true that the stock market do crash periodically, it is also for a fact that it bounces back in the same manner. This is the nature of the stock market. One day it is up, the next day it is down, the following day it is up again. Opportunity to earn a great deal is best done when the market recovers up. So without wasting your time, below are some steps on how to invest in the stock market for Beginners with little money.
Table of Content
SECTION A-: Preparing Yourself
SECTION B-: Getting a Stockbroker / financial adviser
SECTION C-: Taking Action
How to Invest in the Stock Market Online With Little Money – for Beginners
1. Procure enough money-: Money is the means to buying anything and when investing, especially in the stock market, money is needed in huge amounts. It is a requirement, therefore, to have enough money when investing. In fact, the SEC (Security and Exchange Commission) made it clear that money is a determining factor if you want to invest in Private Placements or pre-IPOs. Aside from the money to be invested in stocks, a sizable savings account should be available as a security measure. So, the bottom line to this is great deal of money.
However, i wouldn’t want you to see this article as a discouragement to those who want to invest but have little money. The truth here is that you can start investing with as little as $500, $1,000, etc. But the catch here is that you must look for a brokerage firm or stockbroker that will be willing to work with you regardless of how small your investment capital is.
2. Get the basic training on stock investing-: Investing is a game of knowledge, skill and experience. If you are not going to first invest in yourself, by getting training on how to analyze stocks; then please stay away from the stock market. Investing your money on stocks without knowledge of what you are doing is simply foolish, even if you make some money by luck, you will definitely lose it because luck can’t carry you far in the stock market.
“Even a mistake may turn out to be the one thing necessary to a worthwhile achievement.” – Henry Ford
3. Study, Study, Study
“People without financial knowledge, who take advice from financial experts are like lemmings simply following their leader. They race for the cliff and leap into the ocean of financial uncertainty, hoping to swim to the other side.” – Rich Dad
When it comes to investing in stocks, having plenty of information can give you the edge. In fact, studying as an investor is a never ending process. Things change so fast in the business and investment world, and the only way you can keep up with these changes is by learning constantly. So before you buy any kind of stock, study it thoroughly first.
4. Understand the risks
“In today’s rapidly changing world, the people who are not taking risk are the risk takers.” – Robert Kiyosaki
If you are wary of all the risks involved in stock trading, you can make wiser and more confident decisions. One of the most notorious scams that are still being used today is the infamous “pump and dump” scam. This scam involves a group of unscrupulous stock traders who buy a lot of cheap stocks, and then they spread rumors about how great the company is doing. These fabrications will temporarily hype the price of the company’s stock and during this time, the shady traders will sell all of their shares of the company to unwitting buyers for a hefty profit. And then, after selling every stock that they have, they will stop the hype and the price of the stocks will plummet.
The “pump and dump” scam is just one of the traps that are strewn all over the stock market waiting for gullible new traders to take the bait. A big part of knowing how to make money in the stock market is learning how to identify and avoid scams.
5. Do your Research-: Before officially investing in stocks, it is wise to learn everything first about the stock market. Entering the market without proper knowledge of it is like going into war without a gun. Learning how to invest in the stock market begins by knowing how it operates, how earnings are made and how are they lost, the buying and selling of stocks, the nature of stock market as an investment, and how to evaluate stocks. Learn everything there is to learn in this field. There are a lot of credible books out there giving sufficient information about the stock market.
6. Develop your strategy
“Many people rush into the game of investing thinking they are predators. When they get to the middle of the game, they then realize they are the prey and try to escape but it will be too late. Only the preys with a well defined exit strategy will escape, the rest will be slaughtered by the real predators.” – Ajaero Tony Martins
The market prices of the stocks are continually fluctuating. You need to develop your own strategy on understanding the movement of your stocks so that you will know when it is time to buy or sell.
7. Have more than one strategy
“Consider the mouse, how wise an animal. It never entrusts its life to only one hole.”
There is no guarantee that a single strategy will work for you all the time. For cases when your original strategy is not working, it is best to have a plan B set aside.
8. Buy Stocks-: Buying stocks can be done in one of two ways. Either by direct buying through a stock trading account or from the primary market; or through having a brokerage account (secondary market). There is nothing much to say about direct buying; it is simply a situation where an investor buys the shares of a company on Public Offer. In another instance, it is basically a self-initiated buying of stocks in which you must have a checking account where all the buying/selling will be debited/credited. Through brokerage account, on the other hand, you have to hire the services of professionals to do the buying and selling of shares on your behalf. For a predetermined commission and other fees, a brokerage account will do all the necessary work for an investor.
9. Build a Portfolio-: The next step is to gradually build an impressive and lucrative portfolio by buying stocks from reputable companies with proven profitability records. As much as possible, diversify the portfolio by acquiring stocks from companies having different natures of operation and exist in different sectors of the economy. Investing in companies which basically operate in the same manner is not wise.
10. Diversify your portfolio
“Diversification is a protection against ignorance. It makes very little sense to those who know what they are doing.” – Warren Buffett
“The wise man put all his eggs in one basket and watches the basket.” – Andrew Carnegie
The saying “never put all of your eggs in one basket” works in the stock market as well but more important than diversifying your portfolio is to know what you are doing. To lower the risks involved in stock trading, you need to invest in stocks of different companies. Like i said earlier, you must know what you are doing.
11. Never invest “scared money”
“Scared money” is money that you cannot afford to lose; like money for mortgage payments or for paying the household bills. The stock market is an unpredictable place, there is always a chance that you will lose everything you have if you are not careful.
12. Monitor the stock market
“The markets generally are unpredictable, so that one has to have different scenarios. The idea that you can actually predict what’s going to happen contradicts my way of looking at the market.” – George Soros
“Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.” – Warren Buffett
By keeping a close watch on your stocks, you can see when its prices will start to rise or fall, thus signaling you to buy more stocks or sell some that you own.
13. Invest on some tools-: Though there are plenty of free stock trading software out there, it is still better to invest on some paid ones. The paid versions of trading software often have a lot of features that are not in the free version, and most of the time, it is these little “extras” that spell the difference between doing great and crashing down hard.
14. Hold Stocks for Long Term-: As much as possible; hold shares for long periods of time, usually in a span of 5 to 10 years. You need to avoid temptations of selling when the stocks are performing well. Sometimes, though, it is good to sell a portion of the share if the price appreciates really high. In cases of stock prices getting ridiculously high, then you should consider selling because, in one way or another, something wrong will occur for sure. In much the same respect, don’t keep stocks that result into losses. Weed them out. Invest regularly by adding new stocks.
15. Consult Reputable Financial Advisers
Without financial knowledge, people look for someone to tell them what to do and where to put their money. Just like Lemmings simply following their leader, these people race for the cliff and leap into the ocean of financial uncertainty; hoping they can swim to the other side. – Robert Kiyosaki
No man is an island, and no investor or entrepreneur succeeds without the input of a team. When it comes to business and investing, it is not advisable to be a lone wolf, so learn to consult some reputable advisers. By doing this, you will continue to learn and be open to ideas that can be applied to the investing process.
“It is better to hang out with people better than you. Pick out associates whose behavior is better than yours and you will drift in that direction.” – Warren Buffett
“Seek advice on risk from the wealthy who still take risks, not friends who dare nothing more than a football bet.” – J. Paul Getty
There are actually a lot of experienced stock traders / investors who are willing to help out beginners like you, for a price of course. But even though you have to pay for expert advice, they are all worth it if it means that you can earn more money in the process.
Now taking in information cannot hurt but you should be careful who you are taking information from. Before accepting anyone as your financial adviser, you should ask for a track record or his/her own investment portfolio. Finally, you must continue reading books written by experts on the market; doing this will help you will find tremendous success.
How to Invest in Stocks for Beginners with Little Money
Now that the fundamentals are laid out, let us now discuss some tips on investing in stocks. Presented below are some of the easiest ways to invest in stocks when you have little money:
a. Enrol on a 410k Plan-: To investing in stocks for beginners with little money, perhaps, the easiest way is to avail the 401k plan of an employer company. The 401k is a company’s investment plan for its employees. In here, a monthly portion of an employee’s salary is deducted to be allotted to stock investing. Do this for a long period of time and the amount will accrue to some sizeable amount including earnings.
b. Discounted Broker Accounts-: One way to buy stocks is by creating a broker account offered by brokerage firms. In here, professional services of stockbrokers are hired by investors to manage their stock portfolio. This process can be expensive though because of the commissions and other fees imposed. However, there are discounted broker accounts that can be availed; for the same services but with lesser expenses.
c. Invest in Mutual Funds That Invest in Stocks-: There are a lot of risks in stock investing but one way to lessen this to invest in mutual funds that invest in stocks. With little money as capital, mutual is a stable way of investing because it distributes an investor’s money to the different holdings of the mutual fund firm they apply into. This also provides for a diversification.
d. Reinvest Dividends-: One way to increase an investor’s share holdings is by reinvesting the dividends they get from the shares they own. Through this, a substantially wider portfolio can be built over a period of time, which can mean a more secured investment on the investor’s part.
e. Start Early-: In money talk, a dollar invested now is a few dollars in 5 years’ time. Do this in large scale and it equates to amounts of riches. This is particularly true in stock investing. The concept behind this is compounding; money increases in its purchasing power because of compounding.
f. Never Stop Learning-: This can never be emphasized enough. The only way to be successful in any business endeavor is to be well versed with the goings of the business itself. You can hire a stockbroker or financial adviser to provide you information about stocks regularly; this will help you make better investment decisions.