The Beginner’s Guide To Investing
Investing your money is an excellent way to grow your wealth. For the long-term investor, stocks are a great investment at any point in time, especially during market downturns as these simply mean that you could purchase stocks at a discount. As a means to a happier future, investing in any asset is the easiest way to make your money work for you so that you can reap the rewards of your labor in the future.
If you’re looking to get into the stock market, make sure you keep on reading this guide. We’ll be providing you with a detailed checklist of everything you need to begin your journey toward financial freedom. Don’t worry, we’ll also be providing you with our top picks for educational resources as well as anything else that you might need.
Without further ado, let’s begin.
Decide What Type of Investor You Want To Be
While this may be the first step investors take when they begin investing, it’s arguably the most important. Determining the type of investor you’re looking to become will dictate the strategy that you will be using, the amount of risk that you are looking to take, and ultimately, the amount of profit that you will be looking to take home.
Now, what do we mean when we say type of investor? Well, we aren’t referring to a list of trader personalities where you have to pick one and adapt it because the truth is — there is no list. Every trader is unique and we can’t define their trading style by simply placing it in a specific category.
For the sake of education, however, we can try to generalize the different trading approaches based on the amount of risk that the investor is willing to take. They are as follows:
- Defensive
- Conservative
- Balanced
- Growth
- Aggressive Growth
As you gain more experience in the markets, you’ll find that defensive traders are those who are less likely to take on risk, they deal primarily with fixed income assets and make most of their profits off of dividends. On the other hand, Aggressive Growth Traders are willing to withstand the market ups and downs in search for greater returns. Take note, however, that this process requires the trader to take on more risk than their defensive counterparts. While this opens you up to larger profits, it also comes at the risk of greater losses.
Identifying the type of trader relies heavily on the amount of risk that you are willing to take on. Adjusting and adapting risk is called risk management.
Moving forward, make sure you take note of your level of risk-aversion and the type of trader you are. These will be your core guiding principles as you take on the challenge of investing in the financial markets.
Get Educated
As with any other profession, trading the markets requires you to get educated. Learn the fundamentals and build on them as you expose yourself to the trading markets. In this step, it’s important to take it all in first so that you don’t get so overwhelmed. Aspiring traders often give up quickly after seeing the sheer number of charting tools and indicators that they believe they’ll have to master.
We’ll let you in on a little secret: you don’t need all of them. Not all professional traders actually make use of all one hundred tools available at their disposal. They actually have a dozen or so favourites that they use on an almost daily basis to verify the validity of a trade idea.
Now, you may be wondering, if we don’t need to learn about all these tools, then what should we get educated about?
As a beginner trader, it’s ideal for you to get a foundational level of knowledge of the whole process before you get into it. This foundational knowledge includes learning the basic terminology and concepts of both fundamental and technical analysis, understanding how the economy works, and analyzing the important parts of the financial reports. Of course, these aren’t the only things that you should learn if you’re looking to get into trading but as a basic crash course? These will definitely suffice.
Now, other than knowing what to learn, you’ll also need to figure out where to learn it. Technically, you can do a google search of everything you need to know about a certain topic — but that’s just not efficient. When you do a google search on a topic, you’ll be given thousands upon thousands of links to a variety of sources, each with its own method of educating its readers. Needless to say, it’s easy to get overwhelmed and get lost by the sheer amount of information available.
What you need is a proper curriculum, a simple step-by-step process that helps you build an understanding of what it means to be a trader.
Build A Strategy
After getting a gist of what it means to be a trader, it’s time for you to start finding a trading strategy to implement. Most new traders start by learning the trading strategies of other traders. There’s nothing wrong with that and it’s a viable method to get your feet wet in the trading scene.
However, it’s also important to look to create your own trading strategy, one that’s specifically tailored to your personality and risk management profile. Here are a few steps that you should look to take if you’re looking to create a holistic trading strategy:
- Form your market ideology
As we said, there are many ways to pick out a strategy. For those starting out, you could easily look over some of the strategies that we offer and start off with those. Don’t worry, as you gain more experience, you’ll easily find a new guide
2. Choose a market for your strategy
Different markets call for different strategies as they also deal in different asset types. Forex markets trade currencies, equities markets trade shares, and the crypto markets trade cryptocurrencies.
3. Pick a timetable to test it out
The next step is to figure out for how long you want to test your new strategy. Now, there’s no specific timetable for this. It varies from strategy to strategy. Just make sure that you record your experiences throughout the process.
4. Backtest
To verify the validity of your work, you have to backtest your strategy. This allows you to optimize and improve your strategy, find any technical or theoretical flaws or gain confidence in your strategy before you apply it to the markets.
5. Repeat
There’s not a single perfect strategy. If it exists, someone probably would have already found it. That’s why this step is important — it means that you’re not stagnating and continuously improving your strategy.
Choose A Broker
Brokers come either as full-service or discount.
Full-service brokers are the ones who offer a wide range of services, including but not limited to financial advice for retirement, healthcare, and anything else that could be related to money. As these guys normally deal with high-net-worth clients and often require a pretty large minimum account size, it is not uncommon to find individuals often opt instead for the alternative.
On the other hand, discount brokers provide you your own tools to place your own transactions. These are generally the same brokers who allow you to make your own trades and manage your own portfolio. Occasionally, they’ve also added more features, such as educational materials on their sites or mobile apps.
When picking a broker, make sure you know what you’re getting into and research them as much as you can. After all, these are the people that you will most likely be giving the majority of your future. If you want to check it out, you could find a list of our favorite brokers here.
Manage Your Account
After you’ve done everything above, it’s finally time for you to start managing your account. Now, there are two ways you could go about this: managing a demo account or starting live trading.
For beginner traders, perhaps you should look into managing a demo account before getting into anything. This will allow you to get a feel of the markets and instill confidence whenever you look to begin trading. There’s another advantage to using a demo account prior to a live one, it allows you to understand how the platform works and get a feel of this particular broker’s trading conditions. This ties in beautifully with the previous step of researching more about your broker.
Finally, once you’ve become confident in your trading strategy and broker, it’s time for you to begin trading!
FAQs
How can I start investing with little money?
Investing with a smaller amount is no problem! There’s definitely no minimum amount that you need to have to begin investing.
There’s no problem with investing a smaller amount. In fact, it’s great if you start early!
How much do I need to invest to make $1000 a month?
Historically speaking, the S&P500 has returned 10% annually. To make 1000 a month, you’d have to make 12,000 USD yearly. Because of the way compounding interest works and assuming that the rate of return is on par with that of the average, this means that you will need at least $100,000 invested to receive returns of at least $1,000 a month.
Now, if you are a dividend investor, it’s important to note that companies generally give out 1% dividends meaning that for every 1$ you invest, you could get around 0.01$ in dividends. By calculation, to make 1000$ a month in dividends, you need at least $100,000 invested in various high dividend-yielding stocks.
How do beginners start investing?
For beginner investors, don’t worry! Just go over the steps we listed in the blog post above and it’ll help you along the path to becoming a professional trader.
