Lots of people have heard stories of people making serious money investing in the stock market. Yet they believe stories like that only happen to people who are already rich or financially smart. They think the stock market is too complex for them to understand, so they don’t tend to view it as an option for building wealth.
In reality, anyone at all can invest in the stock market. You don’t need to be rich to start. It’s possible to begin with small amounts of capital. You also don’t need to be a stock market expert to get started.
All you need is the desire to invest for your financial future and the willingness to learn some basic investing principles.
An Average Joe’s Guide to Investing in the Stock Market
Here is a quick guide to successfully investing in the stock market for the average investor.
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Once you start learning the basics of how the stock market works, you’ll soon find it’s not as daunting as it first appeared. The more you learn about buying and selling stocks through your share trading platform, the more comfortable you’ll become with the process.
However, it all begins with education. There are plenty of tutorials and educational tools available. There are also lots of sites that allow you to learn about new price information or apps that let you monitor market movements in real-time.
Take advantage of the tools you have available and use them to create an investing strategy that works for your individual financial goals.
Set Aside Investing Capital
Getting started on the stock market doesn’t take a lot of cash. However, you will have to put some money towards building your stock portfolio.
If you don’t have any spare cash put aside, it’s time to create a savings plan. Take a careful look at your current income and expenditure and work out any areas where you might cut some of your costs. With any money you save, put it aside into a dedicated savings account. The money you put away will become your investment capital.
Practice on a Demo Account
Before you jump into the realm of stock investing, spend some time practicing on a demo account. Most stock trading platforms offer demo accounts that let you practice buying and selling shares using demo cash.
A demo account is an ideal way to gain familiarity with how the trading platform works. You’ll be given access to a range of pricing and charting tools and real-time market prices, so it’s a great opportunity to learn how things work before you commit any of your own cash.
Set Up Your Trading Account
In order to buy and sell stocks, you’ll need a trading account. There are plenty of options available, so shop around and choose one that suits your needs.
Take the time to check the brokerage costs you’ll pay for each transaction you make and know how each transaction affects your investment strategy. You can open a trading account at TradeKing and get trades for as low as $4.95 each.
When the price of your stocks increases it can be tempting to sell them and reap the profits. You can take that dream vacation you’ve always wanted or pay for home renovations or do whatever you want with your profits.
However, if you’re serious about building real wealth consider reinvesting your profits to keep your portfolio growing. Buy new stocks with your profits to keep your portfolio growing.
Alternatively, your profits may be coming from dividend earnings. If you’ve been receiving your dividend payments in the form of cash and using them to supplement your income, consider reinvesting them into a dividend reinvestment plan.
The dividend reinvestment plan (DRIP) allows you to receive your dividend payment in the form of additional shares added to your portfolio. You don’t pay a brokerage fee on the newly-issued shares, so you have the opportunity to increase your portfolio’s value without adding any money out of your pocket.
Use Stop-Loss Limits
Your stock trading platform gives you some options for setting safeguards for your investment portfolio, so be sure to use them to your advantage. Learn how to use your stop-loss order settings and set your limits to help minimize any losses.
The idea is to set the limit at a price you’re willing to sell the stock at in the event the market takes an unexpected downturn. Don’t set your limits too high, as you risk your shares being sold during a normal market fluctuation. Learn how to use stop-loss limits to your advantage and then monitor your portfolio regularly to be sure you’re minimizing your risks wherever possible.
Investing in the stock market isn’t just about getting rich. It’s about building a level of financial security. Even if you only begin with a few hundred dollars, it’s possible to build a profitable stock portfolio that has the potential to be the cornerstone of your wealth creation efforts for years to come.
Millie Gould is an investment mentor who takes great pleasure in seeing her clients succeed with building their portfolio. As well as working 1-on-1 with people, she also shares her tips and knowledge around the web with her articles.