During the pandemic, many people were left without a stable income. Without any income, to be honest. Those who used to work 9 to 5 in their offices were made to work from home. How to earn via the Internet – that is what millions of people now want to find out. Investing in stocks is a way that seems to be simple and requires no university education. Moreover, knowing how to invest in stocks for beginners with little money can become a real-life savior. Everybody can do that, right?
Let’s find out what basic knowledge, investments, and skills you require to start making your living by investing in stocks and how much you can earn.
The article covers the following subjects:
Investing in Stocks: 5-Step Guide
Of course, it’s impossible to fit in the art of investing in stocks in 5 short steps. However, following these pieces of advice, you will be able to make fewer mistakes while getting used to working with stocks. Prepare yourself for losses – without them, no learning can be done. However, if you keep on exploring trading opportunities, make efforts, and discipline yourself, you will be able to go the long road from a beginner to an experienced investor with high-yield shares.
Step 1: Decide How You Want to Invest in Stocks
What You Can Invest In
Individual stocks. To invest in individual stocks means to buy a company’s shares. The reasons for a company to go public with their shares may be different – they may want to raise the capital to start, expand, or grow the company. You can make money through stocks in two different ways. One way is through the price appreciation of the stock. The other way is to make money through dividends, which are the profits of the company paid to the shareholders.
Index funds. This is another popular investment mechanism that tracks a market index. An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor’s 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses, and low portfolio turnover.
Mutual fund. This fund represents a company that takes money from numerous investors, puts it in stocks, and uses it as short-term debt. Shares in mutual funds can be bought. If you have a share, you have a part of ownership in this fund; therefore, you have a right to possess the income the company gets.
ETFs. It stands for the exchange-traded fund and is a type of security. It is connected with an index, sector, commodity, or another asset. You may buy and sell it on a stock exchange just as if it was a usual stock. ETFs may consist of different types of investments, including stocks.
Stock CFD. CFD stands for contract for difference. It is an investment product you buy and sell that tracks the performance of an underlying security. СFDs are used for trading. They don’t allow you to own stocks, but you can trade on the rise and fall of their price. Trading is considered to be the easiest way. It fits perfectly for beginners – even if you have only $100, you can dive in.
Index CFD. Indices measure the price performance of several (mostly the largest ones) shares traded on one exchange. FTSE 100, S&P 500, and DJIA are among the most popular indices. Trading indices, you get exposure to an entire economy or sector at once.
What You Can Use to Invest
1. Online brokers. There are two types of brokers – full-service and discount. If you choose a full-service broker, you will be provided with a wide range of services – for example, financial advice for retirement, healthcare, and financial consultations. The services take significant fees along with a certain percentage of your transactions and assets.
Discount brokers’ services are on the rise right now. Certain fees are also charged, but there is no restriction about the minimum of transactions. You may also use so-called robo-advisors – this is a hands-off approach; an algorithm makes investment decisions for you, including tax-loss harvesting and rebalancing.
2. Through your employer. This option is quite rare. You have a chance to make your retirement plan by giving away 1% of your salary for your future well-being. If you feel comfortable with it, you may arrange to give more than 1%.
There are plenty of approaches on how to invest in stocks. Those who have close to no free time have the chance to use special services of low-cost investment management. Almost all brokerage firms are ready to invest your money for you according to your preferences. The popularity of so-called robo-advisors is on the rise.
How Much Time and Effort Are You Ready to Spend?
Before you start investing, answer these questions honestly. First of all, what is your goal? Are you ready to spend hours and hours every day to invest in stocks actively, or do you prefer passive investing? Passive investing demands less time and effort, but the result won’t be as impressive as when you spend hours with your face buried in the online world of stocks.
Gives more potential reward
Takes lots of effort
Potential for limiting the downside
Takes lots of time
Can not react to change in the market
Buy/sell decisions are based on research
You need to understand how things work
The index decides whether to buy or to sell, not you
Requires less time
Are You Ready to Invest a Lot?
It is not a problem if you have only $100 to invest in stocks. However, it’s no secret that bigger investments bring bigger opportunities. It is ideal to get rid of any kind of debt before you start investing. Do not forget to think about an emergency fund, so you won’t be forced to sell everything and stop investing because of some life unfortunate situations.
If you aim to invest in individual stocks, $100 may not be enough. However, for trading, it is a great initial capital, as you may use leverage.
Step 2. Determine Your Investing Approach (Long-Term vs. Short-Term)
No longer than three years before the first results
Hard to figure out how to prepare for an economic downturn
Can be good if you want to save up to pay for your children’s education or your retirement
It takes several years before you may get withdrawals
Requires lots of research
Doesn’t take too much time for research
It’s hard to predict what happens with your money in the long run
Money is not locked
Higher tax rates
Your options are not limited to these two approaches, however. Many investors mix a long-term investment with a short-term one by allocating a percentage of cash that shouldn’t be placed at high risk. The part of the money they want to save in any case can go into long-term investments, as they have proved to bear less risk.
Whatever way you choose, please, do research, plan, and elaborate an investing strategy that suits you individually. If you are a beginner, it is better to start with a short-term investment. It is less risky; the result may be seen sooner.
Step 3. Find a Proper Broker. Open an Account to Invest in Stocks Online
Right now, the competition among online brokers is harsh. A lot of companies are ready to offer their services, and they all are trying to create a special feature to make people use their services only. That is a good sign for any investor, especially for beginners.
The less pleasant fact is that there is no universal algorithm that can help you pick the one and only broker for you. What works for one person may do more harm than good for you.
Pay special attention to the following factors:
Reliability and reviews
What minimum initial investment is required
Educational resources and programs – that is crucial for newbies
Promotions for new customers
Step 4. Set a Budget for Your Stock Investment
In order to do so, it is better to look closely at your incomes and expenses- both the past and expected ones. The right planning will help you to reduce the risk of shutting down your investment future due to emergency expenses.
Don’t be afraid to take matters into your own hands. Make investing in stocks your priority, and start to save up for that. Include money for investing into your list of essentials like groceries, housing, entertainment, and so on.
Generally, 5-10% of your income can be put away for investing in stocks. Remember that these investments must be free from your monthly or usual annual expenses.
Step 5. Manage Your Stock Portfolio
Build a margin of safety. As Benjamin Graham, the father of modern security analysis, pointed out in his book, “The Intelligent Investor,” the chief risk is not that you’ll overpay for excellent firms. The risk is that you’ll pay too much for mediocre businesses during prosperous times.
Invest in what you understand. It would be ideal for you if you could predict what the future holds for a certain company in the future. Unless you understand the economics of an industry and can forecast where a business will be in five to 10 years, it may not be wise to purchase the stock.
Have a closer look at the operating performance of a company, not its current stock price. The economic world is so unstable – stocks can drop in price due to some economic issues, but if they have all it takes to cope with a downtrend and gain even more – why rule them out?
Stocks to Invest in: 2021-2022
According to the Investor’s Business Daily, the fastest-growing stocks are Alphabet (GOOGL), DocuSign (DOCU), Crocs (CROX), and Goldman Sachs (GS). These and more than thirty other stocks are expected to grow more than 50% in 2021. Kiplinger recommends paying attention to the following stocks.
Canadian Natural Resources. It is one of the largest oil and natural gas producers in western Canada, supplemented by operations in the North Sea and offshore Africa. The company has a huge portfolio with low-risk projects. The company has an overall grade of B and a Buy rating in the POWR Rating system. It also possesses a Growth grade of A. CNQ has grown sales by an average of 12.1% per year over the past five years, and analysts expect revenue to soar 38.4% year-over-year in the second quarter.
Capital One Financial. It is a diversified financial services holding company headquartered in McLean, Virginia. Its credit card segment is the largest contributor to revenue at over 60%, followed by its consumer banking segment and its commercial banking segment. COF has a Growth Grade of B, as earnings have been surging. Over the past three years, earnings per share (EPS) have grown an average of 32.1%.
Eaton. The company has been operating through various segments, including electrical products, systems, and services, aerospace, vehicular, and e-mobility for more than 100 years. The growth stock has a Quality Grade of B due to solid fundamentals. As of the most recent quarter, it had a current ratio of 1.5 and a debt-to-equity ratio of 0.7. Plus, its gross margin of 30.8% is higher than the industry average.
Best 5G Stocks to Invest In
Nokia. The Finnish company specializes in multinational telecom services, develops 5G wireless networking standards, and is one of the leaders of the hardware market. In 2021, the price of Nokia has risen by 50%. Right now, Europe has a huge demand for 5G networks, so the future is quite bright for the company.
Qualcomm. It is another one of the world’s largest wireless technology companies. Its technology and products are also used in the automotive, computing, IoT, and networking industries. Despite stiff competition, Qualcomm’s net income skyrocketed to $1.76 billion, a 276% increase compared to a year ago.
Apple. It is the biggest 5G provider in the stock market right now. In the first half of 2021, Apple’s revenue rocketed by 65%. Since the introduction of the iPhone 12, it has taken Apple less than six months to climb to the top of the 5G smartphone rankings. New iPhones are being sold all over the world with huge success, especially in India.
Gold Stocks to Invest In
These are the best gold stocks, according to Investopedia.
Centerra Gold Inc. The company has properties in North America, Asia, and other key markets.
Torex Gold Resources Inc. It is another Canada-based gold producer. In July 2021, the company reported over 118,000 ounces of gold produced from its El Limón Guajes mine during Q2 2021 and reiterated its full-year production guidance.
Endeavour Mining PLC. It is a UK-based mining company with activity across West Africa, with additional development and exploration projects along the Birimian Greenstone Belt.
Technology Stocks to Invest In
As U.S. News states, tech stocks have been on a tear in 2021. These are the three of them that may be worth your attention.
Adobe. The Adobe Creative Cloud includes a handful of software services that are absolutely vital to modern-day creative pursuits, from filmmaking and graphic design to photography and digital content creation like Acrobat Pro, Dreamweaver, Illustrator, InDesign, and Photoshop. The revenue consistently grows by 20% a year.
Sonos. It is a company that specializes in electronics. Sonos has all it takes to become the best tech stock to buy in 2022. Sonos raised its fiscal 2021 outlook in each of its last two quarters, with revenue up 90% year over year last quarter.
Match Group. This is the world’s premier online dating company, with brands like Tinder, Match, OkCupid, Hinge, Plenty of Fish, and other services all under its control.
Healthcare Stocks to Invest In
Healthcare is something everybody needs. The demand for this sphere will never go down. The Motley Fool advises taking a closer look at the following stocks.
Vertex Pharmaceuticals’ newest CF drug, Trikafta, could boost the number of patients that its drugs can treat by more than 50%. The company is also developing drugs targeting other rare genetic diseases as well as more common diseases, including type 1 diabetes.
Intuitive Surgical is quite an expensive investment. However, The company’s da Vinci robotic surgical system has been used in more than 7.2 million procedures since its introduction in 1999. The pandemic has hurt the company a lot, but in the long run, the profit of the da Vinci robot is enormous.
UnitedHealth Group is the largest health insurer in the world. Size, stability, and dividend are the company’s advantages which make its stocks one of the most attractive ones.
Renewable Energy Stocks to Invest In
Renewable energy is our future. What’s more, having the stocks of eco-friendly companies can make you feel good about yourself. Invest in the future of the Earth with the following firms.
Clearway Energy is a developer and operator of renewable energy projects with solar and wind assets in 25 states. CWEN also provides energy storage services.
Canadian Solar is one of the world’s largest manufacturers of solar panels, inverters, and related equipment.
Ford+ includes a goal for 40% of the automaker’s global vehicle volume to be electric by 2030, including the Mustang Mach-E, which is already on the market, and the F-150 Lightning pickup, which will go on sale in 2022.
Blockchain Stocks to Invest In
Blockchain technology and cryptocurrency have illegal status in some countries, but no doubt the situation will change in the future. That’s why it is necessary to find reliable companies and to know how to invest in blockchain stocks.
NVIDIA is the leading manufacturer of graphics processing units (GPUs), which are essential components in such important technological arenas as artificial intelligence, autonomous vehicles, and gaming.
Square has two main components to its business – its payment-processing ecosystem for small businesses and its Cash App person-to-person payment platform. It also has operations in business lending, a stock trading platform, and several other adjacent businesses, and it recently introduced Square Online Store, which helps merchants build out e-commerce and omnichannel capabilities.
IBM has made some big moves recently to try to jump-start growth. For example, its $34 billion acquisition of Red Hat gives it lots of cross-selling opportunities with its enterprise clients.
Useful Tips for Stocks Investments
There are 8 Must-Know Tips for Every Stock Market Beginner:
Diversify your portfolio
Invest in blue-chip stocks
Never invest in ‘free’ tips/advice
Avoid blindly following the crowd
Invest in what you know and understand
Invest regularly & continuously
Have discipline & follow your plan/strategy
Don’t Forget to Diversify
Diversification can help you to manage risk and reduce the volatility of an asset’s price movements. This also is an efficient way to enlarge your returns. For example, your portfolio can consist of real estate, government bonds, market stocks, domestic and international stocks, and bonds. Don’t forget to try Forex. Don’t limit yourself with one sphere – invest in blockchain stocks, as well as transportation and retail ones.
Invest in Individual Stocks Gradually
The main reason to do so is that you have to contribute a vast amount of time researching and looking for the company you want to invest in. We recommend studying its past and reading some professional opinions about its future. Moreover, with lots of individual stocks in your hands, it is hard to diversify the portfolio. You will also have to face a greater responsibility to avoid emotional buying and selling as the market fluctuates.
Get Investment Education
Naturally, no one stops you from investing in stocks without it. You can even create your account and become an investor without any clue of how it works and learn through practice. However, you can learn faster and lose less if you attend some investment courses – there are free materials on the Internet, as well as reasonably priced programs for beginners and for experienced investors.
Should You Invest in Stocks?
So, what can be said at the end? We think that the most important thing for you to get rich with the help of investing in stocks is to sit and think thoroughly. You must be able to understand what your financial state is and where it is going. Based on how much money you can spend with no regrets, you may choose one of the different investment approaches or combine them.
Shatter all the illusions if you have them. Becoming a successful investor takes time and the desire to educate yourself, discipline, and, of course, money. You won’t be protected from losses and downs, but they will help you to grow as a trader or a stockholder.
Investing in stocks and making a living is in your hands. And it is possible. The best way to start is to master your trading skills.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.