If you are new to the stock market, it no doubt seems a bit overwhelming and complicated…it certainly did for me at the beginning! Most beginner investors don’t even know where to start. Some may not even fully understand how the market works. But not too worry – I have cast my mind back to those days and written a guide for how to invest in stocks for beginners that should give you a bit of a head start.
Over the long term, what drives the stock market is underlying global, economic, and financial growth. In the short run, however, what drives the market is simple fear and greed, which are just underlying human emotions. During prosperous times, it is not uncommon for the stock market to go up more quickly than underlying earnings. In times of economic downturns, low consumer confidence, and political uncertainty, the stock market is likely to do worse than the predicting underlying fundamentals.
Another basic point to mention for investing in stocks for beginners is that just like the economy, the stock market runs according to supply and demand. The amount of shares available dictates the supply of stock, and the amount that investors are looking to buy dictates the demand. For every share that someone buys, there is someone selling that share (and the other way around). The stock market is essentially a huge superstore that is automated, and everyone goes there to sell and buy their stocks.
Exchanges are the main players in the market. Looking into exchanges will help you with investing in stocks for beginners. This is where the buyers get matched up with the buyers. Exchanges also help determine the share prices and facilitate trading. The primary exchanges are the NYSE (New York Stock Exchange), Nasdaq, and ECNs. There are also a few regional exchanges like the Pacific and American Stock Exchange.
Here are also some useful tips for how to invest in stocks for beginners:
·Don’t try timing the market. This may be tempting, but impossible. There are thousands of materials written about it, but no one has been able to come up with a way to properly follow the trends.
·Use cost averaging. It is best to buy stocks on a periodic basis (for example, once a month or once a paycheck). This way you avoid buying at low valuation.
·Take taxes into account. If you hold stocks for over a year, you will get taxed less – something called the ‘long-term capital gains rate’. Selling them before one year is up will sometimes mean that you get taxed twice as much.
·Diversify your investments. Invest in various things, not just stocks. For example, you can try bonds, mutual funds, or real estate too. Then, if one of them underperforms, you’ll have others to fall back on.
·Diversify your stocks. Invest in various stocks, as opposed to just one or two. Avoid the industry you work in unless you are very confident about it, as a sudden crunch in your industry could then affect you in more ways that one…
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