Investing in stocks: Smart advice for beginners
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The value of stock markets around the world soared in 2020 to reach an all-time high of $95 trillion. Investing in the stock market is a long-term process with the potential to help you manage and grow your finances. Although investing can seem daunting, complicated and risky, doing your research and learning as much as you can will help you get started. By employing proven and reliable strategies, it’s possible to make smart investments that pay off in the long run.
Types of investment
As a beginner investor, you’ll usually have to choose between investing in mutual funds or individual stocks. Mutual funds or exchange-traded funds (EFTs) are easier to get to grips with. A mutual fund is an investment fund consisting of money pooled from various investors, which is then invested in different financial securities (like stocks or bonds). The revenue generated is distributed among the investors in direct correlation to the number of investments or units they hold. EFTs, on the other hand, essentially track an underlying market index (like NIFTY, SENSEX, or S&P 500, for example). With EFTs, you purchase shares in an index, which means you own a small fraction of those companies. Alternately, individual stocks require advanced knowledge and the ability to stay updated with current market changes. Fortunately, stock scanners can be used to quickly search stock data and highlight relevant information. For example, reviews report that Scanz is reliable scanning software that lets users build customised scans to keep them in the know about stocks they’re more interested in.
Decide your risk appetite
When deciding on potential investments to make, it’s important to consider the level of risk you can withstand, which takes your current age, capital, financial goals, and existing liabilities into account. For example, if you’re relatively young and without any children or dependents, then you may be able to withstand a higher degree of risk. However, if you’re nearing retirement age or are the main breadwinner in your family, you’ll want to make less risky investments. As a general rule, investors typically prefer to hold mostly mutual funds. Since mutual funds are diversified, they carry less risk.
Build a diverse portfolio
Building a diverse investment portfolio is key to minimising your level of risk — this is because it lessens the blow if a particular asset performs negatively. Ideally, you want to feature a combination of bonds and stocks. Experts recommend holding 60% of your portfolio in stocks, and the remaining 40% in bonds. However, you can tweak this depending on your financial situation. You’ll also want to include several growth-focused strategies (such as high-yielding corporate bonds or preferred shares), as well as strategies designed to maintain capital and not necessarily increase it — investment-grade bonds and certificates of deposit, for example. Such a diverse portfolio will preserve your money, while generating a healthy return on investment.
Stock market investing doesn’t have to be overly complicated or risky. By learning about different types of investments, deciding your risk appetite, and building a diverse portfolio, you’ll see long-term success.
