How To Invest in Stocks ? - Jay Influencer

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Why You Should Invest in Stocks?

Investing in the stock market provides numerous benefits to your finances. Unlike simply saving your money, investing curbs against the harmful effects of inflation. Inflation is when the buying power of currency decreases due to factors such as more money being added into circulation. A dollar today can only buy 65.79% of what the same amount could buy in 2000. In other words, $1 had the same purchasing power twenty years ago as $1.52 does today. By investing your money into stocks, your savings can keep up or surpass the rate of inflation instead of being eaten away by it. Investing also enables your money to work for you. Instead of physically having to provide a valuable service to another individual to make money, your money grows as the value of the stock increases. Investing also allows for compound interest where the interest you make is directly reinvested. Additionally, with the outlook of Social Security looking poorly, individuals need a backup retirement plan. Investing into stocks provides the perfect opportunity and you can even invest in an IRA account for retirement purposes. Lastly, investing in stocks provides a secondary stream of income that can help provide you some extra cash for necessities or to spend on something you want.

When is the best time to invest in Stocks?

With all of these benefits of investing in the stock market, it should be obvious that the best time to invest in stocks is now! It has often been said that the best time to invest was yesterday and that the second-best time to invest is today. Some individuals will wait to enter the stock market when it has a correction. Time in the market, however, beats timing the market. The longer time that one has in the stock market, the more their money is able to compound. Large, profitable investments from the stock market take time to build, so it is best to start as soon as possible. The more time that one has in the stock market, the more their money is able to compound. For example, starting with $1000, incurring a 5% yearly return rate, you will end up with about $21,610 in 30 years. If you had started investing ten years earlier, for a total of 40 years, with the same amount of return and the same starting amount you would have about $35,200. Even if it is a downturn, there still will be types of stocks that are bullish. Therefore, the best time in the market to invest is always now.

Investing is not trading

Before investing in the stock market, it is pertinent to remember that investing in stocks is not the same as trading stocks. Investing and trading are two different approaches to the stock market, and both of them have differing strategies and techniques to follow to be successful. Investing in the stock market is a long-term approach with the goal of creating consistent returns. Investing involves buying and then holding stocks over a long period of time. The goal of investing is not to make huge gains in a short period of time but instead to build your wealth over several years. Investing is usually guided by looking at the fundamentals of the companies that you are planning to invest in. Trading stocks follows a very different strategy in comparison. Instead of holding stocks over a long period of time to create growth, traders buy a stock and then sell it in a matter of days, hours, or sometimes even minutes. Trading plays off of a shorter term volatility in the stock market instead of long term trends. Therefore, traders do not look at the fundamentals of companies or the value of them or their industries. They alternatively look for chart patterns or follow market indicators that can alert them whether a particular chart is bullish or bearish. These indicators and patterns also often indicate how long the short-term trend will last. Trading is far riskier than investing due to the higher volatility. Trading is also why most people lose money in the stock market. While investing, do not look at short term trends or short-term wins and losses like traders do. Investing is playing the long game!

Investing with professional management

There are numerous ways to start investing in stocks. Some investors would rather have a professional invest their money instead of doing it themselves. Professional management can be beneficial if you do not want to spend a lot of time learning how to invest in stocks or if you do not want to spend a lot of time researching stocks that you wish to invest in. Using professional management to invest also allows you to start making money faster. When an individual begins investing by themselves, they are likely to make several mistakes while they learn. Investing with professional management means that you do not have to risk your money on beginner’s mistakes. There are several ways to invest with professional management.

One way to invest with professional management is through hedge funds. If one has enough capital, they can invest into a hedge fund where others invest your money for you using complex strategies like derivatives, short-selling and other techniques. Hedge funds, however, have restrictions on who can join the hedge fund. Therefore, most individual investors are only able to invest in hedge funds indirectly like investing in a stock of a financial company with a hedge fund. Individual investors and traders often view hedge funds in a negative light as they see hedge funds as manipulators in the market.

A mutual fund is an easier way than hedge funds for an individual investor to have someone else invest their money. Mutual fund companies pool together money from numerous investors. The mutual fund then invests this money via stocks, bonds and more. To invest in a mutual fund, an individual buys shares of the mutual funds. The number of shares they own is proportionate to how much of the fund and the fund’s income that they own. Mutual funds are attractive to investors because they allow for diversification. Diversification means that the money that is invested is diversified in multiple stocks so that the risk is reduced. Mutual funds are also affordable especially in comparison to hedge funds. The initial investment into mutual funds is low. Retrieving your money from a mutual fund is also easy.

A third way to invest with professional management is by having a financial advisor. Instead of investing in a fund to receive professional help with stock investing, a financial advisor manages your funds in the market while advising on which stocks to invest into. Financial advisors usually build personal plans to help the individual reach the goal that they want. They will help you achieve your financial goals not only through investing but through savings, tax planning, and more. Having a financial advisor can help you understand the risk of specific stocks and the amount that you wish to invest in those stocks. Financial advisors will also recommend you particular investments. Although financial advisors can be beneficial by minimizing your risk and maximizing your profit, financial advisors can have underlying interests. Some financial advisors will push you to buy stocks or investments that they are also invested in with hopes that it will push their share prices up. They also might be told by their company to push certain stocks on you. Another con of using a financial advisor for investing is that they are usually paid via commission. Therefore, a percent of the money that you make from your investments will go to your advisor.

Individual investing

Another option to begin investing in stocks is individual investing. With companies such as Robinhood and Webull as well as being able to trade off of your phone, individual investing is becoming more and more common. Instead of going through a fund or a financial advisor, you can learn to invest your money yourself. There are many benefits to investing your money yourself such as not having to pay fees like commissions, being able to take your money out whenever you want, and not having to worry about the underlying intentions of the people that you invest your money with. Financial advisors and funds make their money by making risky trades and keeping your money in the market. Individual investing allows you to bypass these pressures. Before investing your money yourself, however, it is important to be aware of the drawbacks. Many individuals lose money in the stock market because they trade off of their emotions instead of a strategy. You will also likely lose money trading at the beginning while you make common beginner mistakes and find a profitable strategy.

Before investing, a good way to limit your risk and test your strategy is to paper trade. Paper trading is the nickname for trading in a stimulation. Paper trading allows you to “buy” and “sell” stocks without using real money. Paper trading allows you to practice trading and investing in the stock market before you begin the real thing. It is best to use paper trading until you have proven to yourself that your investment strategy is profitable. To benefit the most from paper trading, it is important to use a stimulation that correlates to the real market while using your real strategy. Once you enter the real market after finding a profitable strategy, make sure not to change it. Paper trading is offered by numerous online brokers like Tradestation, Fidelity, and TD Ameritrade’s thinkorswim.

What brokerage should I use to invest?

With the increase of individual and digital trading, there are innumerable brokerages to choose from to open an account with. Robinhood has been a common brokerage used for inexperienced investors and traders to get into the stock market. Robinhood allows its users to bypass restrictions like options trading much easier than more traditional investing brokerages like Schwab. Moreover, Robinhood allows for commission free trading unlike most other brokerages that make you pay a fee every time you trade. Robinhood does have its drawbacks, however. Robinhood pays for its “free” commissions by having higher fills on buy orders and lower fills on sell orders. Therefore, you end up losing some of your money anyways. Robinhood also has decreased in popularity following the Gamestop (GME) saga. Robinhood prevented traders from buying “meme stocks” like GME and AMC while a group of Redditors ATTEMPTED to rally these highly shorted stocks with the goal of a short squeeze. A short squeeze is when a stock increases more due to short sellers selling off their shares because the stock is increasing. Short selling is betting on the stock to decline over time. Short sellers buy a stock at a certain price while agreeing to sell it back to the buyer before a certain time with the goal of the stock decreasing. Many people saw this lock on trading these stocks as a way to manipulate the market which has given Robinhood a bad rap. Another popular brokerage that is common with new investors is Webull. Webull also allows for the trading of stocks, options, and ETFs without commission. It also is relatively easy to open an account. Moreover, Webull offers more complex trading strategies such as butterfly calls in options trading that Robinhood does not have. The drawbacks, however, are that they have limited stocks to trade and only allow bank transfer. A third popular brokerage to use is TD Ameritrade. TD Ameritrade has a wider range of stocks to invest from while also offering competitive fees for trading. TD Ameritrade also offers advanced trading tools. Charles Schwab is an example of a more traditional brokerage that is popular for stock trading. Schwab offers a range of investing and banking accounts. The trading fees are also low. Schwab does make it more difficult to bypass restrictions like options trading, however. These are just an example of some of the popular brokerages that are used for trading and investing.

The difference between a cash and margin account

After you have decided which brokerage to open an account with, you need to decide whether you are opening a cash or margin account. A cash account only allows you to trade with the cash you have in your account. Only trading with the cash you have in your account means that you have to let a trade settle before being able to use that money to buy stocks again. Cash settling usually takes a day or two, depending on your brokerage. Margin accounts allow you to buy stocks with unsettled funds. When trading on margin, however, it is important to remember that you cannot sell the stock that you bought with unsettled funds until those funds are settled. Margin also allows you to use leverage when buying stocks. Leverage allows you to invest additional money that you do not have, so you can make higher profits. Using a margin account is more of a risk than using a cash account and requires the investor to be more cautious.

Strategies to follow when investing in stocks

After you have set up your account with your chosen brokerage, it is time to actually start investing your money in the stock market. While investing, it is important to remember that price fluctuations are due to innumerable factors that are out of your control and that are impossible to take into account. Anything and everything from the overall economy to the economy of a particular industry to increased levels of output or demand to an Elon Musk tweet can affect the price of a stock. No one actually knows whether a stock will rise or fall. The best that anyone can do is make an educated guess based on strategy.

There are numerous strategies that individual investors use to help maximize their returns. One strategy that is used by investors is investing in high yield dividend stocks. Some stocks provide dividends to their shareholders such as Apple (AAPL). These companies give dividends to their shareholders when they make a profit. The rest of the profit that is not given to shareholders is reinvested into the company. Instead of making profits off of a stock increasing, the mentality of dividend stock investors is to make profits off of the dividends that they are then able to reinvest. Some brokerages even allow you to reinvest the profit made from dividends directly back into that stock. One high yielding dividend stock is National Health Investors Inc. (NHI) which yields around a 6.59% rate in dividends. Another high yielding dividend stock is Artisan Partners Asset Management Inc. (APAM) which has a 6.10% dividend yield rate. A third high yielding stock is Prudential Financial Inc. (PRU) which has a dividend yield rate of 5.35%.

Another popular strategy with individual investors is to look into and research the fundamentals of a company that you are interested in investing in. Knowing the fundamentals of a company can help you predict whether a company will grow or whether a company will decrease. To analyze the fundamentals of a company, you need to look at basic quantitative and qualitative information such as how much room the company has for growth. Another important fundamental to look at is the direction of the industry the company is in. The amount of output that the company produces along with the number of employees the company has are also good indicators of a company’s prospective growth. A very important measure to look at is if the company is profitable year to year. Lastly, another good indicator to look is the competitors of the company. If the company is going to be surpassed by its competitors, the stock will likely decrease as investors move their money into those companies. If the company is going to surpass its competitors, the stock will likely increase as investors move their money into that company. An example of a company that investors say has good fundamentals is Amazon (AMZN). Amazon has grown into the largest online retailer and shows no signs of slowing down. Amazon also reports high earnings.

A third strategy individual investors can use to help pick a good stock to invest in is by following the media attention of stocks. The media has a lot of influence over the opinions of the public as they share with the public what they think the public should know. If a lot of news companies provide a particular company with positive media attention, that company’s stock will be more likely to rise as the general public’s outlook on the company increases. If a lot of news companies provide a particular company with negative media attention, the company’s stock will be more likely to decrease as the general public’s outlook on the company decreases.

Judging whether a company is undervalued or overvalued based upon the price of its stock is an additional method utilized to decide which stocks are beneficial to buy in the long run. In the short term, stock prices may not reflect the actual value of a company as individuals buy or sell the stock based on their emotions. In the long term, however, a stock price is likely to reflect the actual value of a company as short term hype or short term pessimism wears off. If a company is undervalued, it provides us with a good time to buy since it will likely increase until the stock reflects the actual value of the share. Under valuations can be caused by short term bad news or negative news in the particular industry that the company is in among other factors. If a company is overvalued, it is a good opportunity to sell the stock if you already own it. The company’s stock will likely fall back to a price that better reflects the company’s actual value. Overvaluation can be caused by short term bull runs and short squeezes with other factors as well. You can then buy the stock back at a lower price. If you do not own the stock yet, wait to buy the stock until it falls back down to a more reasonable price instead of buying at or near the top of the stock price in the short run.

Another technique used is to invest in stocks that have traditionally risen. Although the past cannot predict the future and stocks especially change, some investors only buy stocks that have consistently been profitable in the past. These investors also avoid buying stocks that have historically decreased. By investing in stocks that usually have risen, individual investors are able to take a safe bet that these stocks will continue to follow that trend. The key to using this technique is to be aware that a stock may start to reverse its trend and head in the other direction. When a stock does go in another direction, which at some point the stock likely will, make sure to sell the stocks that you have in what is now a decreasing trend or look into buying the stocks that now have an increasing trend.

Abnormal levels of volume is also an indicator used to buy a stock for individual investors. The volume of a particular stock is the number of shares that are being traded in a stock. Increasing volume coupled with increasing stock price is a bullish signal. Increasing volume means that more people are buying into that particular stock which will increase the already increasing price. Both increasing volume and increasing price will also attract other investors which will further increase the price. If you are going to use increasing volume as an indicator, ensure that you buy the stock before the majority of the others have bought the stock or you risk buying at the top. Another way to use volume as an indicator to buy stocks is by buying into a stock that is increasing in the long run but has lower volume than usual. Lower volume than usual means that the price of the stock will not be getting pushed up by a wave of new buyers. Therefore, buying at a low volume enables you to buy the stock at a cheaper price. Then, at a later date when volume does increase, you can sell and buy back at a lower price.

An additional method that individual investors can use is by following stock market indexes like the S&P 500 or the Dow Jones Industrial Average. Stock market indexes such as these are used to show the general direction of the stock market. Stock market indexes often take a number of individual stocks that have historically performed well and combine them. This combination is, therefore, able to show the general direction of the stock market. The S&P 500, for example, combines the performance of 500 stocks from large companies. Stock market indexes usually only include stocks that perform well. Therefore, if a stock is included in a popular stock market index, it is usually a good stock to buy. Moreover, when the stock market indexes are bullish, usually most stocks are also bullish in the market which provides another good indicator for individual stock investors. Although you cannot buy directly into stock market indexes, you are able to buy into ETFs which include parts of all of the stocks in the particular stock market index.

Investing into ETFs, like stock market index ETFs, provides a good investment strategy for individual investors, especially new individual investors. ETF stands for exchange-traded funds.

An ETF stock has a number of different stocks included into one. ETFs can be beneficial for several reasons. First off, ETFs allow for diversification. Instead of putting all your money into one stock, ETFs are a combination of multiple stocks. Therefore, if one stock that is included in the ETF drastically decreases, your investment portfolio will not take as much of a hit. The downside of this is that if one stock that is included in the ETF drastically increases, your investment portfolio will not rise that much. ETFs also usually have lower rates of return than traditional stocks because of this combined approach. ETFs are also beneficial because they provide access to a variety of stocks at a low price. Some stocks may be too price for you to invest in. Through an ETF, however, you may be able to own part of a share since the price is usually far cheaper than traditional stocks. Overall, buying ETFs is a good investment for old and new investors alike because it allows for diversification.

Common mistakes to avoid when investing in the stock market

One mistake to avoid is trying to time the market. Timing the market means attempting to invest into stocks when the market is in a downturn or when the market is lower than it usually is. Timing the market is like trying to catch a falling knife. Oftentimes, it will keep decreasing after you buy which will only cause you to panic. Moreover, by waiting for the “perfect time” to invest in the stock market, you lose out on investment time as a whole. Investing in the stock market takes time and the longer that you invest your money, the more your money will grow. There also is no perfect time to buy into the stock market because the stock market is always fluctuating which means there will always be a lower low and a higher high than when you invest your money.

Another common mistake to avoid is buying call options or put options for a stock without proper experience and knowledge. Call options and put options allow you to buy the right to buy or sell a stock respectively at a set price on a certain date in the future. Since options trading is incredibly risky, traditional brokerages like Charles Schwab make it difficult to enable options trading on your account. With newer brokerages like Robinhood or Webull, however, it is far easier to get options trading turned on. Options are far more volatile than traditional stocks which makes them attractive to most investors and traders because the possible returns are much higher than normal stocks. Higher possible returns also mean lower possible returns as well, however. Many new traders lose their money to options trading. Therefore, without proper experience, one should avoid option trading.

Another mistake made by new investors is taking the advice of other individuals without doing their own research. Unless they have a lot of successful experience in the stock market, chances are the individuals giving you advice know as much as you know. Therefore, they may have been convinced to buy the particular stock they are recommending to you by someone else. They may also want you to buy the stock with hopes that the stock will increase or increase more so that they will make money off of their investment. Good investors listen to others opinions on stocks, but they do not invest solely on the opinions of others. Instead, stick to your chosen strategy and if someone attempts to push a stock on you, always do your own research before buying it.

The biggest mistake made by both new investors and old investors is buying and selling stocks based off of their emotions. Buying or selling stocks based off of emotions is why most people lose their money in the stock market. Although the stock market is not purely rational because it is unpredictable, it is the result of how people react to information. Therefore, following an emotional strategy will likely get you burned and burned quick. For example, when a stock is rising quickly, fear of missing out (FOMO) may convince you into buying the stock. However, since the stock is already surging, it likely is too late to get into the stock as the stock nears its peak. The stock will most likely correct itself or fall drastically which results in you losing a lot of money. Likewise, when a stock that you own is drastically falling, your gut reaction will be to pull your money out of this investment. As long as you are following your long term strategy, daily market volatility such as this should not affect your investments. By acting off of their emotions, most people wind up losing their money in the stock market even if they would know better from a rational perspective.

Similar to the mistake of trying to time the market, do not make the mistake of waiting until you get more funds or spend too long trying to gain knowledge on the stock market to invest. As mentioned at the beginning of this article, the best time to invest in the stock market is now. As long as you can keep check of your emotions instead of being controlled by them and you follow a proven and trusted method, it is always a good time to invest in the stock market. Even if the overall economy or the overall stock market is in a down trend, there will always be some stocks that are profitable.

Another problem that often prevents traders from being successful is their ego. Some individuals who invest in the stock market or have invested in the stock market for sometime and have been successful will end up losing money because they refuse to listen to market indicators or to common sense. These individuals lose money because they are not able to admit that they are wrong or have the capacity to be wrong. Being too confident in yourself may cause you to invest too much money into one stock which can drastically harm your portfolio if the trade turns sour. Limiting the number of shares you buy limits the risk that you incur by investing into a company. Making sure that your strategy is working is also a necessity when it comes to keeping your ego in check. Sometimes a method that you have trusted begins to not work. Instead of being stubborn and continuing to use a failing method, try to find a new method that can help you rake in profits on your investments again.

Some additional tips for investing in the stock market

Although proper risk management is a necessity when investing in the stock market or any other investment, do not be too scared to take any risk. All investments have a risk or everyone would be attempting to invest their money. Good investors see risk as an opportunity whereas bad investors see risk as something to fear. As long as you do not place too much money into one stock or listen to your emotions over your chosen strategy, the risk of investing your money into stocks will be beneficial.

Another tip for investing in the stock market is to not let green investments go red. A small return on your investment is far better than a negative return on your investment. Since there will always be more opportunities in the market, there is no loss in taking a small win. Therefore, always keep an eye on the companies and the stocks that you invest into. Ensure that they are still profitable and are still likely to be profitable in the future. If a stock or company has a negative outlook or is beginning to have poor fundamentals, make sure to take your money out of this stock to lock in your profits before they reverse themselves.

An additional tip is to cut losses in your portfolio. Always set a stop-loss for your stock investments in case there is a factor that you are unaware of regarding your stock. Remember that the stock market is not predictable which means that sometimes your investments will make you lose money. When your investments do make you lose money, make sure to cut your losses so that you do not continue to lose money on a bad investment.

Lastly, it is better to sit on your hands than to invest in a bad stock or a bad company. No one has lost money by not investing. Innumerable people have lost money investing into the stock market because they make bad decisions when buying stocks or investing into a company. If you are uncertain about a stock or are not confident in thinking that a stock is bullish or bearish, it is better to not invest any money into that stock at all.