Stocks / Equities
What are stocks?
They are a fractional share of ownership of the company in which you choose to invest. For example, if you buy 10 Shares of Ford Motor Co. you would own a small portion of the company as they have nearly 4 billion shares outstanding. Even though you don’t own a majority interest, you still have an equity stake in the company and you are entitled to vote at the annual shareholders meeting.
When the company did an Initial Public Offering (IPO) they offered a certain number of shares to be sold at a certain price to raise capital for the business. These shares can then be traded on stock exchanges from one owner to another at a price that the market dictates.
If the company is doing well, the stock trading price increases and your portfolio appreciates. However, if the company falters, the stock price usually follows downward and your shares lose value.
Some companies also pay dividends once they are well established and have money ‘leftover’ from operations which they pay shareholders. It is a cash payout on a predefined schedule, typically quarterly. This class of stocks is considered the Income class.
Why Invest In Stocks?
Investing in stocks is an exciting prospect. It holds the promise of finding the next big thing where you and 10X or even 100 times your investment, though these stocks are not common, being a part of them is very rewarding. Investors who got into Tesla, Apple, and NVidia when the stock price was low, made a lot of money if they held the shares.
However, keep in mind that investing in stocks should not be approached haphazardly. Take the time to learn before putting a lot of money into a stock and cross your fingers. That investment in time will pay off big dividends! (See what we did there?)
More practically speaking, it is an easy way to put your money into a company you believe will do well over time.
Paper Trading is a fun way to practice before you start trading. You can practice on paper as the name implies, or use an app. The Webull.com app includes a Paper Trading tool to do it right in their app with virtual money so you can check in when you want to see how your virtual portfolio is doing.
Stay tuned, we are building a course to help educate you on the financial and technical analysis of stocks to help identify quality stocks, identify the signals to buy or sell a particular stock, how to develop an investor mindset, and more!
Investing in stocks can be a rewarding way to build wealth over the long term, but it requires careful consideration and understanding of the process. Here are the general steps involved in investing in stocks:
- Educate Yourself: Before diving into stock investing, it’s essential to educate yourself about how the stock market works, different types of stocks, investment strategies, and risk management. We will help you here, but there are many resources such as books, online courses, and reputable financial websites can provide valuable insights.
- Set Financial Goals: Determine your financial objectives and how investing in stocks aligns with them. Are you looking to grow your wealth for retirement, save for a specific milestone, or generate passive income? Your goals will influence your investment strategy.
- Establish an Investment Budget: Decide how much money you can comfortably allocate to stock investments. It’s crucial to invest only what you can afford to lose, as stock prices can fluctuate significantly in the short term. However, you learn here how to mitigate any losses and maximize your growth.
- Choose a Brokerage Account: Select a brokerage firm that suits your needs. Consider factors such as fees, research tools, customer service, and the ease of use of their trading platform. Online brokerages include Robinhood, TD Ameritrade, E*TRADE, and Charles Schwab. We use Webull.com as the trades are cheap and reliable, and they often have promotions for free fractional shares to help build out your portfolio for free!
- Research Stocks: Conduct thorough research on potential stocks to invest in. Look into the company’s financial health, earnings history, growth prospects, industry trends, and competitive position. This is ‘Fundamental Analysis’ and involves examining these factors to determine if a stock is undervalued or overvalued. Technical Analysis involves analyzing current market conditions and trends in the stock.
We are developing an ebook to condense a great deal of analysis techniques into an easy-to-understand synopsis of analyzing companies and determining when to buy or sell, which is where we lock in our gains/losses. - Diversify Your Portfolio: Spread your investment across different stocks and possibly other asset classes (like bonds or real estate) to reduce risk. Diversification helps mitigate the impact of poor performance from any single investment. Just don’t go too far in diversification and invest in products with which you are not comfortable.
- Make Your First Investment: Once you’ve chosen stocks to invest in, place your trade through your brokerage account. We highly recommend placing your order at the maximum price you would like to pay for this trade by setting a ‘limit order’ to buy at a specific price. This is one aspect of the discipline we encourage when investing. It is part of your investment plan or strategy.
- Monitor Your Investments: Regularly review the performance of your investments and stay updated on news that may affect your stocks. Consider setting up alerts or using investment tracking tools provided by your brokerage.
- Adjust Your Portfolio: Periodically reassess your portfolio to ensure it remains aligned with your financial goals and risk tolerance. You may need to rebalance by buying or selling stocks to maintain diversification or respond to changing market conditions.
- Stay Informed and Stay Patient: Investing in stocks is a long-term endeavor. It’s essential to stay informed about market trends and economic developments but avoid making impulsive decisions based on short-term fluctuations. Patience and discipline are key to successful stock investing.
- Consider Professional Advice: If you’re unsure about investing on your own or have a significant amount to invest, consider seeking advice from a financial advisor who can provide personalized guidance based on your financial situation and goals.
Make sure they are aligned with your investment goals and not trying to steer you into high-fee funds.
Conclusion
By following these steps and staying disciplined in your approach, you can begin investing in stocks effectively and work towards achieving your financial objectives in no time.
