Stocks have always allured investors. Nevertheless, it is not child’s play. It is one of the best avenues of earning profits albeit risks. And surprisingly, even a veteran often makes a mistake when he invests in stocks in predicting the market trends and puts his money in the wrong financial instrument.
An important aspect that you must keep in mind before investing in stocks is that you must not allow your investments to be ruled by your emotions. Let us find out how to buy stock.
Stock market basics
Buying stocks is not a very difficult task. But the main difficulty is which company stocks must you invest in? And this is one area when most of the people dwindle. Before getting into the tips for investing in stocks, the first rule of thumb that you must follow is never to invest more than 10% of your investment in any individual stock or a single investment vehicle.
The remaining amount that you intend to put into your portfolio can be diversified in other areas like low-cost index as well as mutual funds. If you require the proceeds of what you invest in stocks in the following five years, stay away from stocks under such circumstances.
How to get into stocks
Get into stock trading by following these tips below. If you do not want to take any risks, online tutorials are providing valuable information about the stock market for dummies. Usually, there are dummy demo accounts that can help you to try your hands before you take the actual plunge.
You can also find out how to invest in stocks online once you are sure about the trading process.
According to Warren Buffett, “Success in investing doesn’t correlate with IQ…what you need is the temperament to control the urges that get other people into trouble in investing”. Follow this piece of advice and jump onto the bandwagon.
Keep your long-term goals in mind it is a very common practice to enter the market when the price of the stock is low and then sell it off once the price of the same stock rises. You earn some quick profit. However, this is not the right approach because the stock you are selling right away just after a little increase might as well increase further. So, you lose out on some extra money that you could have pocketed.
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Study well
Here study does not mean you have to go back to school. Before investing for beginners especially, it is particularly important to understand how the stock market works. For instance, if you are planning to invest in any stock, find out more about the company by-
- Studying the balance sheet of the company
- Going through the loss and profit accounts
- Looking into the operating margins
- Earnings for every share invested
- Last but not least how the socio-economic and political scenario of the country might impact the stock price.
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Do not keep all your eggs in the same basket
This is of course an age-old secret mantra of success in the world of investments. Whenever you are planning to invest even if it is in stocks 101 or more, go for a combination of small, mid, and large-sized company stocks. Also, never buy stocks that belong to one sector. For instance, if you want to buy stocks belonging to the healthcare sector, you might as well try your hands in manufacturing company stocks.
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Keep reacting to small changes
There might be several instances when it is quite likely that you are holding the stock of a company that shows astronomical growth within a week or might slide back nevertheless. However, do not take any hasty decisions based on these short-term changes. Instead of taking any step, first, find out why these changes have manifested.
The tips mentioned above are just a few. You will come across several such instances while you are trading online or at the exchange that will show you the way. However, the stock market is a dynamic environment and the only constant thing is change.
How to invest in dividend stocks
If you are investing in stocks that give you dividends, there are few rules that you can follow to get better returns. Let us see what these tips are-
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Quality is more important than quantity
For beginners especially, numbers can deceive you in the stock market. Seek stability even if it means that you might have to forego some amount of yield in the short-term. However, if you opt for the so-called “buy and hold” strategy, you will be a winner in the long-run.
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Go with a reputed company
Always check the past performance record of companies in stocks you want to invest in. Invest in stocks for those companies that enjoy the reputation of holding the title of “dividend aristocrat”.
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Keep track of Payout Ratio
The dividend payout ratio helps in assessing the company’s safety in terms of investing in its shares. It also gives you vital detail about the company’s income how much it can retain in the long-term.
How much money do you need to invest in stocks?
The amount of money you intend to put in stock trading often depends on your objectives. Always opt for smaller investments. Let it be smaller but regularly. It does not make sense in shelling out a huge sum of money in one large stock at one go. Investing smaller and regular offers greater flexibility.
