I thought investing was difficult even though I studied economics. I believed that stocks would be too risky. It would be too time-consuming and I wouldn’t be able to make a profit. I wouldn’t ask the question: How do I invest in stocks? It would be too complicated, I would assume.
Do you see the pattern here? It was all just a thought. I wasn’t doing. It was easy to see that everyone has a beginning and that anyone can succeed if they take the time to do so. Continue reading this guide for beginners if you feel overwhelmed. So you are ready to start investing in stocks? I’ll explain the basics to you!
Overcoming Your Biases
Your biases are the first step to investing. What are your biases about investing in stocks? You could use the examples I have already given: I’m not qualified to invest or don’t have enough time to invest.
From where are your biases originating? Is it uncertainty or lack of knowledge that is causing your biases? You must take action to overcome these biases.
What are stocks?
Stocks, or shares, are small ownership parts of a company. Our share of the company increases in value when it does well.
Demand exceeds supply when more people are looking to purchase shares of the company. The stock’s price will rise if there is more demand than supply.
Long-term growth is what we expect from companies. In the long term, the natural movement of stock markets is up. The market will recover from any market crashes and continue to move upwards. Stock market growth has been on average 7% over the past, which is far better than any savings account.
Why should I invest in stocks?
Understandably, you might wonder why stocks are important.
The stock market’s natural movement is up. We can see that the historical average return on investment is 7% per annum. This is the same as in the past 100+ years. You would therefore hope to increase your investment over the years.
Companies that have been in business for a while are considered mature. Companies that have been in the market for a long time will not offer you an average annual growth rate of more than 10%. They can provide dividends. Dividends are a portion of the profit that the company does not reinvest. Instead, they pay their shareholders their profits as a way to say ‘thanks!’ Dividends are usually paid out quarterly or monthly by companies. This will help you increase your return by reinvesting the dividends.
Do Your Research
This is a crucial part! Research is key when you invest in stocks. Don’t think, “Oh Facebook had +15% this year, let me buy it.” Or: If I like my MacBook, then I think Apple is a great company to invest in. They make products that I love.
Be careful if you have a bias about a company. You may like a company or have a certain opinion about it, but that does not necessarily mean the company is making a profit. Companies that make a steady profit over a set period are the ones you want!